Dell in Transition, What Did IBM Know

By Mike Anderson

As Dell races to transition from a Public to a Private company, it is clear that the Tablet Era is claiming its victims. Once the leader, Dell joins others like HP and IBM facing the reality that the PC’s rule is in decline, and the business generates high volume but has tight margins with fierce competition.

IBM Exits the PC Business

In December 2004, IBM sold its PC division to Lenovo for $1.75 billion. While filled with solid products creating solid revenue, IBM made strategic moves to get out of PCs, and printers, to drive enterprise systems and services with better margins.

So what did IBM know about what would come to be just eight years later? This has to do with how 100-year old firms manage their business, and how breadth of R&D and focus on innovation in managing get applied. IBM viewed Personal Computers as a commodity back in 2004 and they ‘pulled the trigger’ to exit that business.

Microsoft Protects its Ecosystem

As part of taking Dell private, Microsoft has taken a role with a $2 billion loan. While not being active in the deal and management itself, this connection adds to the hooks Microsoft has in its ecosystem. As with the funding provide to Nokia to build the market for Windows Phone, this looks like another means to keep Dell engaged and seek to ensure devices are built to optimally leverage Windows.

Although building its own hardware in the Surface tablets has created new dynamics with its critical OEM partners, Microsoft wins as long as Windows attracts users to devices that make it shine. Being able to more tightly influence the device-making process is an important factor. With Dell taking a deep look at its identity and the ability to bring more innovative and entrepreneurial efforts to its PC and mobile device future, Microsoft can end up with new and broadened means to take on the tablet era with business and consumer devices.

Dell of a Different Color

This is a huge move for Dell. Today’s public companies face tremendous scrutiny. For PC industry players seeking new identities, that’s too much openness on an almost daily basis. It also means little room for missteps without putting shareholders on edge. By being private, Dell can shield itself from the downturn in the PC business and potentially emerge as more of a full-service enterprise IT provider. With short-term market focus on where the next wave of revenues or big impact cost reduction will surface, large-scale innovation and shifts in identity don’t play out well.

Once approved, Dell’s LBO enables innovation and reinvention with sights on defining a new Dell and a new Michael Dell legacy. Dell brought entrepreneurial spirit from its beginning, and has successfully leveraged itself through supply chain and online consumer buying innovations. Finding a new enterprise role with the PC relegated to bit player in the new mobile era is a big target. Strengthening enterprise services to take on the likes of IBM is a likely key lever. With Microsoft close at hand, Dell needs to be able to bring back the old magic for a device family of PCs, phones, tablets, hybrids, and new form factors that contend in the Tablet Era.