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Dell goes private to attempt balancing act with PCs and IT services

Newly private Dell will be able to take more risks and move its devices and services ambitions forward. What will this mean for Dell PCs?

After months of negotiations, Dell has succeeded in becoming a private company again. But the road to becoming a successful devices and IT services company will be much longer.

CEO Michael Dell has worked to acquire the company from shareholders all year. This week, in partnership with global technology investment firm Silver Lake Partners, which received a $2-billion loan from partner Microsoft Corp., the deal was finalized.

The total transaction is valued at approximately $24.9 billion and is expected to close before the end of the third quarter of Dell's FY2014, subject to closing conditions and regulatory approval.

If they can't put that puzzle together, or if it takes too long, it'll likely be a long, painful death.

Matt Vogt,
senior systems engineer, Nexus

Without answering to shareholders, Dell can now take more risks and move its devices and services ambitions forward. Some IT pros wonder what this will this mean for Dell's core PC business.

Dell remains tethered to PCs

Despite its broader enterprise IT market ambitions, Dell remains committed to delivering Windows desktops in the troubled PC hardware market as sales continue to decline.

The combined market for PCs, tablets and smartphones is forecast to grow 27.8% year over year in 2013, but that growth is driven by tablets and smartphones, according to the IDC Corp.'s Worldwide Quarterly Smart Connected Device Tracker, released this month.

The PC outlook was lowered by 10% in 2013, and though more PCs than tablets will be shipped for the full year, tablets are expected to surpass total PC shipments (desktop plus portable PCs) in the fourth quarter of 2013. IDC forecasts that tablet shipments will surpass total PC shipments on an annual basis by the end of 2015.

Dell has delivered Windows 8 tablets, but some say the company needs to emphasize tablets and mobile devices even more.

As Dell goes private, it can be much more aggressive in the client business, including tablets, thin clients, notebooks and desktops, said Patrick Moorhead, president and principal analyst at Moor Insights and Strategy, a high-tech analysis firm.

"The PC business has low margins, but it throws off a lot of cash needed to pay down their debt," Moorhead said. "Dell needs to be successful in client computing to be successful as a company long term."

There's optimism that the company that changed the way enterprises bought PCs can reinvent how companies buy mobile devices.

"To date, Dell has anted up to the table in mobile, but [has]not made any big bets," said Chris Silva, principal analyst and founder of High Rock Strategy LLC, an enterprise mobile consulting firm in Melrose, Mass. "I hope that, in going private, Dell will have the flexibility to make some big moves, take some risks, and bring some new and different products and services to market, especially in mobile."

As Dell extends itself beyond PCs to devices and IT services, some wonder whether the company can do it all -- and do it well.

Can a private Dell do it all?

Dell has expanded its offerings recently to include cloud hosting and IT services, which deliver high margins. The problem is people still view Dell as a PC business, perhaps as long as the company sells PCs.

IBM, for example, sold off its PC division to Lenovo in 2004 as part of its transition to a services company.

"IBM jettisoned their PC business entirely -- granted this was much later in their transition -- which made people focus on their transition and current offerings," said Matt Vogt, a senior systems engineer at Nexus, an IT services provider in Minnetonka, Minn. "People were no longer looking at their quarterly laptop sales, so they had to use other products and services to evaluate how they were doing."

Some think of Dell in terms of the "old Dell" -- centred on client computing -- and the "new Dell" -- which includes enterprise products such as servers, storage, software, IT services and security.

"By and large, it's the old Dell, the client computing parts of the business, that have had the main challenges," said Adrian O'Connell, an analyst at Stamford, Conn.-based Gartner Inc.

This has been partly due to structural changes in the PC industry, such as the spread of smartphones and tablets, as well as bring-your-own-device practices and trends, such as hosted virtual desktops, O'Connell said.

"These changes were all challenging for Dell, but this was compounded by increased competition -- from the likes of HP, but particularly [from] the suppliers, such as Lenovo, who were able to be very aggressive on pricing," O'Connell said.

The new Dell represents future growth -- if the company can overcome some market challenges related to perception and coverage.

"The first issue is whether enough customers and prospects really understand the capabilities of the new Dell and whether they really trust the company as a supplier at the heart of their data centers," O'Connell said. "The second issue is whether Dell has the sales coverage and effectiveness to most efficiently sell the breadth of capabilities the company has now."

These are both areas the company has been working on. As with many of the issues, these are things that take significant time to change, he said.

Dell's managed services also extend beyond data center infrastructure to the cloud -- another business that Dell has tried to sell enterprise IT on. Many of Dell's recent acquisitions have been to add pieces to complete this enormous puzzle.

"Hardware is now just a small piece," Vogt said. "But if they can't put that puzzle together, or if it takes too long, it'll likely be a long, painful death."

News writer Diana Hwang contributed to this report.

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