Dell Computers is having an identity crisis that mirrors the problems with the larger PC industry.
Long a ruthless, sorry relentless supply-chain innovator, Dell’s direct-to-customer model upended the PC industry once upon a time. Without expensive retail displays and margins to give up to retailers, Dell was seen as someone that could customize PCs exactly the way customers wanted and get them into customers’ hands in a matter of days.
In business terms, you could say that its competitive advantage lay along the twin dimensions of “variety” and speed. Cost too, some may argue, but I never found Dell PCs particularly cheap, especially after I was done customizing them.
Anyway, that was then.
Over the last few years, the PC became mega-commoditized. A LOT of players, most of them with deep supply-chain expertise such as Lenovo and HP, were competing for the same business and non-business customers. And more than anything else, there just weren’t that many PCs being bought. Laptop sales were not enough to offset the decline in PC sales. Then in the last couple of years, the meteoric rise of Tablet PCs put paid to any lingering hopes for a rebound in PC sales.
Dell, of course, hasn’t stayed still. It has been acquiring various other customers and trying to become a version of highly successful IBM and perhaps-successful-someday HP:
…The company’s strategy hasn’t looked all that original. It’s essentially trying to become more like and Hewlett-Packard by having a more diverse product and services portfolio. Its rivals, though, headed in this direction years ago. Dell has argued that it can cater to smaller and midsize companies better and perform services work, for example, cheaper than its much larger competitors.
But unfortunately for it, when you are publicly traded, shareholders’ appetite for dramatic change, the kind that Dell is attempting, is very hard. Better for Dell to go private, away from analysts’ prying eyes, the distractions of a shaky stock price and pesky compliance and reporting issues, and do what it takes to reinvent itself.
Large, successful companies have a strong record of doing that in the US and benefit from an infusion of capital (not sure if Dell needs it), a quick exit path for majority shareholders (again, not sure if Michael Dell needs it…knowing his career track, I don’t think he will not cut and run anytime soon) and the ability to slash costs and (more) easily divest of non-performing business units.
The Wall Street Journal reports that a deal may be struck within 6 weeks…So why the sense of urgency, considering that these rumors have persisted since 2000? Looks like its all about its low “off the charts” valuation – a 30% decline in its stock price in 2012…though part of that was reversed by today’s 13% surge.