Dell Going Private Would Carry Rewards, Risks: Analysts

By Jeffrey Burt  |  Posted 2013-01-15 Print this article Print

Given the significant transformation Dell is undergoing, going private makes sense, according to Rob Enderle, principal analyst with the Enderle Group.

"It allows the company to function with the agility of a startup and most of the resources of a large public company," Enderle said in an email to eWEEK. "In effect, if you are contemplating making some major structural changes to the company, this is like, in a car race, pulling the car off the track to do the heavy modifications, rather than trying to do those changes during a pit stop or while the car was actually racing."

Dell, like companies such as Advanced Micro Devices, HP and Intel, has been hit hard by the slide in sales of PCs in recent quarters as consumers turn their attention—and money—to mobile computing devices such as tablets and smartphones. Gartner said Jan. 14 that PC shipments fell 4.9 percent in the fourth quarter of 2012, with Mikako Kitagawa, a principal analyst, saying that "tablets have dramatically changed the device landscape for PCs, not so much by 'cannibalizing' PC sales, but by causing PC users to shift consumption to tablets rather than replacing older PCs."

During the quarter, Dell, the world's third-largest PC vendor, saw shipments drop 20.9 percent over the same period in 2011, and Gartner is estimating that for 2012, Dell will see a 12.3 percent drop. About half of Dell's revenues are related to its PC business, and executives are looking to reduce the company's reliance on this area as it shifts to a more enterprise-centric strategy.

Dell, which has a market capitalization north of $19 billion, generated more than $42 billion in revenue and $1.8 billion in income during the first three quarters last year.

Michael Dell, who owns about 16 percent of the company, reportedly told analysts in 2010 that he had considered taking the company private, though nothing came of it. However, if he is serious this time, there are "a lot of pluses," Roger Kay, principal analyst with Endpoint Technologies Associates, told eWEEK.

"Michael Dell has been looking to run the company with a long view, and Wall Street is very impatient with that," Kay said. "In private equity, they'll wait 10 to 15 years for payback."

However, while Dell going private would bring a lot of advantages for the company, there are some risks—though Kay said they seem "limited." The group that buys the company and takes it private could become unfriendly afterward, but that would be unlikely if Michael Dell is part of that group. Large investors also can gain a lot of power—more than a "typical board member"—which could impact the debt, according to Enderle.

There's also finding investors that can come up with the money for a leveraged buyout of a company the size of Dell, said Pund-IT's King. A buyout of Dell would be the largest since 2007, according to some reports. Still, Dell's market capitalization figure would make it "a rich deal, but not impossible," he said.


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