UPDATED 06:06 EDT / FEBRUARY 07 2013

Michael Dell Takes Back Control: The New Steve Jobs of Services?

It would be naive to think that Dell’s surprising decision to return to the status of a private firm doesn’t impact an entire industry.  The PC sector has had the rug pulled from under it, leaving several companies including Hewlett-Packard, Microsoft and others shifting strategies and rethinking their core business offerings.  Indeed, the global economy wants to be more mobile, work more efficiently and do so at lower costs.  Despite early preparations for today’s post-PC era, both Dell and HP find themselves scrambling to right the boat.  For Dell founder Michael Dell, that means taking back the reigns of his company in a move similar to what Steve Jobs did at Apple, only Dell won’t have to worry about investors and fickle stock prices.

Not surprisingly, HP used Dell’s decision to go private as an opportunity to gloat, if you can call it that.  Shortly after Dell confirmed rumors of a buyout, HP issued the following statement:

“Dell has a very tough road ahead. The company faces an extended period of uncertainty and transition that will not be good for its customers. And with a significant debt load, Dell’s ability to invest in new products and services will be extremely limited. Leveraged buyouts tend to leave existing customers and innovation at the curb. We believe Dell’s customers will now be eager to explore alternatives, and HP plans to take full advantage of that opportunity.”

While HP has a point, it may be rather presumptuous to assume Dell will have trouble investing in new products, and that its services will be “extremely” limited.  We would only expect HP to take full advantage of any stray customers, but many analysts believe Dell’s decision to regain full control of the company is a step in the right direction.  For Michael Dell, this is a grande opportunity to take back full control, circumventing quarterly earnings obligations and avoiding the scrutiny of investors as he works to fully transition Dell from a consumer-centric hardware supplier to an enterprise-ready service provider.

A history of strategic investments

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Dell’s been buying up key companies to build a service-oriented portfolio for the past few years.  One of the most important acquisitions was Perot Systems for $3.9 billion in 2009, Dell’s biggest acquisition at the time.  The IT Services buy was considered a catch-up move in the midst of a recession that had enterprises seeking streamlined options for the data center.  Even then, Dell was behind others, like IBM, that had been investing in the Services market for a while.

Other smart buys include EqualLogic in 2008, KACE Networks and Boomi in 2010, and Compellent in 2011.  While Perot Systems really marked Dell’s seriousness in entering the Services market, the company’s taken in several other smaller players to cover the XaaS gamut, spanning BYOD management, security and consulting.

Around the same Dell snapped up Perot Systems, HP made an even bigger buy with EDS in 2008, as the PC maker readied for a similar transition.  The parallel between HP and Dell continues to this day, as they both try to follow IBM’s lead into Services.  However, many believe that the Services business has already changed so much that IBM and HP are too big to manage.  If this turns out to be the case, both IBM and HP will need to restructure in order to remain competitive in Services, while Dell could find an advantage in being more nimble as a private company.

Can Dell afford to stay competitive?

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Even though Dell has already made a string of acquisitions to bolster its Services offerings, that doesn’t guarantee a complete portfolio moving forward.  HP’s right in that Dell will need to make continued investments in Services, but why does HP think Dell won’t be able to afford it?

According to Wikibon co-founder and Chief Analyst, Dell will have the capital it needs to compete for two reasons:

1.  Dell throws off tons of cash every quarter and is cash flow positive.  

2.  Unlike mature public companies, Dell won’t have to invest billions in stock buy backs and/or dividends to remain attractive to investors. 

Wikibon analyst Stu Miniman backs this up, noting his team has looked at Dell’s numbers.  “For the past five years Dell’s been spending about $3 billion a year in stock buyback.  Since they’ll no longer be spending cash on these buybacks, they’ll have the cash to invest” in innovation, Miniman says during his appearance on this morning’s NewsDesk show with Kristin Feledy.  See his full analysis, which includes an in-depth look at how Dell’s decision will impact the enterprise, its R&D and its M&A, below.

HP, on the other hand, is facing investor worries of its own.  The PC maker has been playing musical chairs with its CEO these past four years, each with their own agenda.  Despite being well-versed in the Services market as the CEO of SAP, Leo Apotheker seemed to cause the most disruption at HP with plans to spin off the hardware group altogether.  Meg Whitman is the latest to take up the charge as CEO at HP, left with a messy acquisition history thanks to the controversial Autonomy buy, another foray into the Services sector.

Dell, a CEO that’s taken back the reigns

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Certainly, a company’s personnel makes all the difference in times of massive transition, and while HP tries to ensure the right leader, Dell has been returned wholly to its founder and chief visionary.  And for a large company undergoing such a painful shift, this could be just what the doctor ordered.

This wouldn’t be the first time a company founder took back control of his firm in times of turmoil.  We saw a similar play at Apple with the return of Steve Jobs, who was able to finally promote his own ideas of how the company should be managed, and what its product line up should be.  The strategy has worked outside of the tech sector, too, for Starbucks, Chipotle and Charles Schwab.

One of the first things Jobs did upon his return to Apple was bring in an all-star executive team.  Michael Dell’s done the same thing, even before the official decision to take his company back to private status.  At Dell World last December we were able to meet the entire management team behind all the major components that make up Dell’s hardware, software and Services departments, many of which had been with the new management team for about a year or less.

Marius Haas and the All-Stars

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Marius Haas at Dell World 2012Heading up Dell Services is Suresh Vaswani,  who joined last year as chairman of its Indian operations and executive vice-president of Dell Services. With the new role, Vaswani will be reporting directly to Michael Dell and will be responsible for developing and delivering end-to-end IT services and business solutions for global corporations, state and local governments.

Another key hire was Marius Haas, who’d cut his chops at HP and spent a brief period at Kohlberg Kravis Roberts (KKR), aiding the firm seek out investment opportunities.  Haas now heads up all of Dell’s data center hardware, including servers, storage systems, and networking gear, leveraging the years of expertise and colleagues from his time at HP.

But Haas is also a deal guy, helping coordinate the monster acquisition of 3com by HP along with several other mergers and acquisitions.  Haas also helped turn HP’s networking business into something worthwhile.  His new position at Dell is by design, working alongside other new hires in an effort to revamp Dell from the ground up.

 


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