In a dramatic move, Michael Dell has announced plans to take back full control of his company by the second quarter of this year. The 24.4 billion dollar deal is emblematic of a PC market shaken up by the revolutionary rise of smartphones, tablets, and cloud computing over the past decade. It seems the same silent forces that have coerced this deal into action are the same ones that will completely redefine the future of the PC market.
Overall PC sales are significantly decreasing
It is no secret that PC sales have been slumping (shipments declining 8.6% from Q311 to Q312- IDC). Though there are only five main players in the PC game, the sum all of the smaller ones is a mega 26.2% market share. How do those two facts relate? It means that even a slight decrease in PC sales will affect even the most dominant companies like Dell, HP, Apple, Lenovo, and Acer.
Most of these companies (actually, all of them excluding Apple) hardly manage a presence in the mobile market and are uncomfortably dependent on the revenue generated from their desktop and laptop sales. That business model was doing just fine, right up until people decided to stop buying personal computers. As PC companies scrambled to keep themselves financially afloat, appease uneasy investors, and rewire their business plans, the mobile market surged ahead. Jay Chou, a senior research analyst at Worldwide PC Tracker, explains,
“While the industry has been focused on shaving excess inventory and preparing to launch a new generation of products, consumers have been looking at alternative devices like tablets.”
More and more people have been choosing new tablets over new PC’s. This, of course, does not mean that the entire PC market is doomed to a typewriter-esque fate. As anyone who has tried to do school, office, or research work on an iPad can attest, there is a very real need for desktops and laptops despite advances in mobile technology. What this does signify, however, is a profound shift in what these PC companies will have to offer us in the future.
PC companies must radically change to stay competitive in the new market
Dell’s LBO reveals a very real, very painful truth felt by all PC companies right now: radical restructuring is necessary to stay competitive in the new market. The public’s broadening appetite for tablets, smartphones, and cloud computing will continue to pressure companies like Dell to come up with exciting products to keep us coming back to their shelves. They need to both entice us to replace our aging, yet completely functional hardware and at the same time somehow diversify their business to fit a new, dynamic tech market.
This is exactly why Michael Dell pushed to take the company private. The company will be free from having to answer to public shareholders on a quarter by quarter basis and will thus gain the freedom to shake up its internal structure and completely sell-off less successful components of the business. The CEO of HP had this to say of the deal,
“With a significant debt load, Dell’s ability to invest in new products and services will be extremely limited. We believe Dell’s customers will now be eager to explore alternatives, and HP plans to take full advantage of that opportunity.”
Though strangely coming from a company whose shares have dropped by 66% over the past three years, HP has a point. Going private does not come without significant drawbacks. Actually, make that drawback. There is really only one, though it’s kind of a big deal: money loss- and a lot of it. Dell will be taking on a considerable amount of debt (including an interesting 2 billion dollar loan from Microsoft) to make the LBO happen.
Despite this, Michael Dell has made the loud choice for control over flexibility. He would not have pushed for the buyout if he was not intending to make some drastic changes to what the company builds and the way it does business. With 24.4 billion dollars on the table, Dell is all-in. In doing so it has drawn the eyes of its competitors who are eager to see the changes the company will be making. Sink or swim, the actions taken by Dell in the coming years will inevitably impact the future of the entire industry.