Michael Dell founded his build-to-order computer company 25 years ago in his college dorm room. Fifteen years later, Dell was one of the world’s largest tech firms and dominated the global PC industry. The company has since slid, as it was slow to adapt to the popularity of notebooks in the mid 2000s and completely missed the smartphone and tablet revolution of the last five years. In August, Dell reported a 72 percent drop in net income over the previous year, after many similarly dramatic declines.
Where Dell is still growing and experiencing the largest profit margins is in data centers, servers, and managed enterprise solutions. To survive the decline in the consumer PC market, Dell must reallocate more resources to research and development to support the sectors where it is currently profitable and to expand into new services. Michael Dell recognized that incurring research and restructuring losses would be hard to swallow for shareholders looking for a rapid turn-around, and completed a deal with private equity firm, Silver Lake, to purchase the company at $24.9 billion. On Tuesday, Dell will be delisted from the Nasdaq. It will use dividend savings to service debt on the $20 billion Michael Dell and Silver Lake borrowed for the buyout. Without a corporate board and shareholders, Dell and his team of investors believe it will be much easier to rebuild the company to provide profitable managed services.
What does all this mean for businesses and consumers? Will Dell computers continue to be supported? Will new business PC and server models continue to be released with the consistency the business world has expected? Will Dell’s ordering and pricing models be maintained? The answer to the first two questions is fairly certain. Though Michael Dell does not anticipate the bulk of future growth to be in the PC market, business PCs will continue to be a huge source of revenue. He has publicly stated that he hopes to build more and not less, since this is a market where Dell’s share continues to increase over its competitors. If Dell expects to continue expanding its share of the business PC and server market, the company’s popular warranty and technical support offerings will be crucial to maintain.
Whether Dell’s product line-up and ordering process will change is hard to know. Dell may have to transition from a build-to-order model to an inventory-based model, where the number of model variations shrinks, but cost decreases and Dell’s profits increase. This is the model Lenovo currently uses and it sees higher margins than Dell. Due to the popularity of its business systems and dependence on that revenue, it is highly unlikely that Dell will neglect business computers or produce hardware that would no longer dominate in that market. For the near and intermediate future, we can rely on Dell computers to remain the top choice for business users.