What does the Dell privatisation mean for customers?

13 Feb 2013

Company promises ‘no impact’ for customers during its transition from public to private ownership, but industry analysts point to potential turbulence and urge caution.

For weeks, it was arguably the IT industry’s least closely guarded ‘secret’. Now that Michael Dell’s plan to privatise the company he founded back in 1984 are officially out in the open, corporate customers may well be asking: “But what about us?”

In the wake of the 5 February announcement of the $24.4 billion purchase of Dell (the company) by Dell (the founder) and equity investment partner Silver Lake, the message to customers from the company was, naturally, business as usual.

“Dell will continue to deliver the superior solutions, services and experiences that our customers have come to expect,” they said. Customers would “not be impacted in any way” by the transaction, according to an official statement - except, of course, for the better, as a result of the “superior customer experience” that the new owners plan to give them.

That’s all very well, but the size of the task ahead of them and the potential impact on customers should not be underestimated. In essence, the privatisation of Dell aims to give the company the space it needs to reinvent itself - a task with which it has grappled with for years as a public entity, with decidedly uneven results.

Or, as Evan Quinn, an analyst with Enterprise Strategy Group (ESG), puts it: “to give Mr Dell the room and time he needs to take his foot off the quarterly brakes without the spreadsheet-toting stare of Wall Street, handing out traffic violations.” The deal will have to go through a long list of approvals, he adds, so customers can expect a good six month window before it closes.

The facts are that, for years, Dell has wanted to target more margin-rich areas for long-term profitable growth, outside of its traditional space of PCs, and to sell a full portfolio of systems, software and services to large corporates. In a sense, it has wanted to become IBM - but IBM before it sold off its PC business. After all, while the margins from PCs may be pretty thin, Dell is still the number 2 PC supplier to corporate customers in Europe, after Hewlett-Packard.

Along the road to transformation, however, Dell has made a large number of acquisitions, some more successful than others, and at the same time, been too distracted to keep a close eye on sudden bursts of growth in the market for personal computing devices, as seen with tablet computers, for example.

Still, Dell has made some pretty smart moves, too. Last year’s acquisition of Quest Software, which closed in late September 2012, has not been without its frictions, say insiders, but takes Dell neatly up the hardware stack into the realm of managing virtualised environments. The company has done a good job of talking to customers about ‘hot topics’ such as cloud and data centre transformation, write analysts at IDC in a report on the privatisation deal: “In EMEA, surveys support the emergence of Dell as a major cloud technology provider as well as one of the major strategic IT suppliers.”

Still, customers should exercise caution in the months ahead, given that a multimillion dollar buyout implies radical changes, says Carter Lusher, chief IT analyst at Ovum. “Dell is in the midst of a wrenching transition from a supplier of commodity hardware, mainly traditional PCs, to being a supplier of enterprise-grade IT infrastructure,” he reminds IT decision-makers in a recent blog post.

In light of potential turbulence, he recommends that CIOs assess the risk to their infrastructure and put into place contingency arrangements, “should Dell’s radical hardware, software and services shifts require changes to procurement plans.”

But the risk is not all on the customer side, Lusher adds: “A significant risk likely to face Dell during this transition is that enterprises and public-sector organisations cut back on their purchases until the dust settles.”

At a time when customers will be looking to see what products and services “stay, get strengthened, or get eliminated”, he says, effective communications with customers and prospects about strategy and roadmap will be Dell’s best chance of keeping them on board.

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