Why Michael Dell Can Afford to Be Bolder as a Private Owner

By Chris Preimesberger  |  Posted 2014-05-22
Michael Dell

Why Michael Dell Can Afford to Be Bolder as a Private Owner

LAGUNA BEACH, Calif.—Seven months after Dell Inc. returned to private ownership following a hard-fought $25 billion stock buyout and 25 years on the NASDAQ index, Michael Saul Dell said he loves the feeling of his namesake enterprise being private again.

No longer do the CEO and his leadership team have to worry about contentious stockholder meetings, loud-mouthed and/or short-sighted investors, quiet periods and additional public sector-related duties he considers "nonsense."

In an onstage conversation with IT analyst Mark Anderson at the 12th annual FiRE (Future in Review Conference) and later in a one-on-one interview with eWEEK, Dell said that going private enables his company to think more long range about projects and financial results, rather than on arbitrary, performance-based financial quarters.

"As a private company, we can be bold," Dell said. "As a public company, with everything you do, you think, 'How is this going to impact the quarter?' This is not altogether bad, but if you really want to join the circus, tune into any public company's annual shareholders' meeting. There's just a lot of noise there that doesn't have anything to do with customers or solving problems.

"As a private company, we feel we have the privilege to innovate and be bold, and to think about our business in a much longer-term context. If you step back and look at our society, there's a plague of short-term thinking—in education, in politics, in finance—and it's very dangerous. We've freed ourselves from that."

Other CEOs Have Asked Dell About Going Private

Dell candidly revealed that he's had "more than 10 public-company CEOs contact me in the last year and ask me about this [going private]."

"And what are their names?" Anderson joked. "Well, I am in a quiet period about that right now," Dell said with a laugh.

Dell and his company have been true survivors in the cutthroat world of IT products and services. The 49-year-old industry icon reminded conference attendees about some of the financial accomplishments his namesake company has recorded in the 30 years since he started it in his University of Texas at Austin dorm room. They included the following:

--Dell's revenues have totaled a little more than $780 billion. "Anybody want to race to a trillion?" Dell quipped. "We'll get there in about four or five years."

--The company's return on equity over the last 90 quarters, or about 22 or 23 years, has averaged about 44 percent.

--While Dell was public for 25 years until late 2013, the stock appreciated 13,500 percent—27 times better than the Standard & Poor's 500.

Dell is, by far, the largest enterprise in any sector to take itself private, Dell said.

"It feels great [to be private again]. There's a whole lot of stuff I don't have to do anymore that was kind of nonsense," Dell said. "Now we can focus on growing our business, invest in R&D, creating with new solutions—continuing the progress the company has been on.

Why Michael Dell Can Afford to Be Bolder as a Private Owner

"There's nothing wrong with the public markets; they serve a purpose, but when you're private, you can focus much more on lifecycle profits, as opposed to period profits. Private ownership really lends itself to longer-term thinking and planning. I think that in the future companies may be deciding to stay private longer and think harder about going public."

Dell has joined the small group of elite all-purpose IT providers by investing billions in enterprise software, having acquired 40 companies in the last seven years. But it doesn't intend to leave the IT hardware business high and dry any time soon.

Hardware Businesses Moving Right Along

Dell servers, storage, clients and networking divisions are still doing steady business—mostly in the midrange sector—serving as a "foundation that allows us to then bring customers new services, software, data center, cloud, security—all sorts of new capabilities we've built or acquired in the last seven or so years," Dell said.

"We've had five quarters of accelerating growth in our client business. For example, in this last quarter, that business [desktop PCs, laptops, tablets] had its best growth since 2006," Dell said.

Despite all the smartphones that are sold each year [1.3 billion in 2013 worldwide], there is still a strong market for PCs, no matter what trends the market research people are producing.

"When your kid goes off to college, are you going to give him only a cell phone?" Dell asked rhetorically. "I guess it depends upon what school he's going to," Anderson quipped.

Dell told eWEEK that the PC sales are on the rise for his company, which recently received an order for 10,000 laptops from one customer. Dell also said his PC business is posting a much larger margin ["multiple times the profit"] than the slim 1 percent profit margin its biggest competitor, China's Lenovo, shows in financial statements. Now that Dell is private, the CEO chose not to offer specific numbers here.

Dell's Venue 8 tablets, which sell for less than $150, have yet to get substantial traction in the market. Competition from Apple, Samsung and others has been tough to crack, but Dell has said his company will continue to forge ahead in that business.

Where Dell Software Is Headed

Dell told eWEEK that Quest Software, bought by his company for $2.4 billion in July 2012 and now known as Dell Software, is being combined with new acquisition StatSoft to build out its big data analytics offerings. StatSoft was acquired in March to add predictive analytics, the most desired type of business analytics among enterprises.

"The Toad platform [Quest's frontline database tools suite] is very popular with database administrators—a very active community of 3 million and growing," Dell said. "Their freemium model has worked quite well. The team has been evolving this into a business intelligence platform for some time. With some organic investment, some acquisitions, and now with StatSoft Statistica, we now have a predictive analytics platform."

"If you line up Toad and Statistica and what they do, they're highly complementary."

Why Michael Dell Can Afford to Be Bolder as a Private Owner

Dell Moving Toad Development Into Analytics

Because data is very industry-specific by nature, Dell said, "you need these kinds of modules in a vertical sense, and we've got quite a lot of that built up. The combination of the enormous Toad user base, which has about a million users—in fact, it's part of the curriculum at some large universities—well, put those together, and you've got a great platform.

"We're also moving this into the new databases—Hadoop, MongoDB," he continued. "I met with the team [in Aliso Viejo, Calif.] that's working on this yesterday, and they have this fantastic relationship with the users. The beta program releases new code all the time, and they actively listen to users," he said.

This type of software development and relationship with the development community is relatively new to Dell, which is pinning a substantial part of its future on non-hardware products and services.

"We've built a substantial software business, with [former CA CEO] John Swainson running it, across systems management, automation, information management like Toad and [software-as-a-service integrator] Boomi," Dell said. "We're seeing Boomi continue on a very, very fast growth rate—darn near 100 percent year over year. The problem it solves is a problem that everybody has: How do I connect any-to-any, old-to-new, cloud-to-cloud, cloud-to-legacy?  We're seeing companies of all shapes and sizes use Boomi.

"We're doing roughly half a trillion connections per month now. It's used as an integral part of a lot of what goes on in the world today."

Dell, a longtime eWEEK and PC Week reader, said that if he had a single message to eWEEK readers, it would be that his company simply wants to be the prime choice for users in order "to make IT simpler and easier to use than anybody else."

The FiRE Conference, now in its 12th year, is an elite international meeting of about 250 business executives being held at the Montage resort in Laguna Beach through May 23. The event is conducted by Anderson's Strategic News Service, a Seattle-based research consultancy that describes itself as "the most accurate predictive newsletter covering the computing and communications industries." Members include IT leaders such as Dell, Bill Gates, Paul Jacobs, Justin Rattner, Steve Ballmer, Paul Ricci, Bill Janeway and other global intellectual, policy and business leaders.

Chris Preimesberger is editor of features and analysis at eWEEK. Twitter: @editingwhiz

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