Free from the bright lights of Wall Street, Dell's decision to go private is likely to lead to the company downplaying if not entirely eliminating consumer products in favor of building out its enterprise product portfolio, analysts said.
Dell on Tuesday announced a buy-out agreement in which Michael Dell and equity investor Silver Lake will acquire the PC maker for $24.4 billion. The transaction includes a $2 billion loan from Microsoft and debt financing commitments from Bank of America, Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.
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Dell in recent years has tried to transform itself from a low-margin PC vendor to an enterprise IT provider offering servers, storage, networking, software and services. Since 2007, Dell has acquired 25 companies to beef up its enterprise product portfolio, but has had trouble bundling the new offerings into a cohesive product strategy.
Dell's strategy to develop end-to-end IT products for the enterprise will likely remain intact, and it can now pursue that goal without the pressure of delivering steadily increasing quarterly profits to Wall Street or answering investors, analysts said. Dell has had to make adjustments that slowed progress toward its long-term goals, but now the company can withstand a few rough financial quarters to develop its strategy, analysts said.
The big change could come in the PC division, where it may exit the low-margin consumer PC and device market and instead focus on enterprise PCs and mobile devices that fit a bring-your-own-device to work (BYOD) strategy, analysts said. Microsoft's loan puts pressure on Dell to remain in the PC business in some fashion, and client devices are also an important way to attract and retain enterprise customers, analysts said.
Dell has been largely profitable, and share prices do not accurately reflect the company's success in recent years, said Charles King, principal analyst at Pund-IT. There won't be a huge change in Dell's product line, and the company will continue to execute on its strategy to deliver more enterprise products, King said.
King highlighted the company's SAP HANA in-memory database appliance, which was introduced last week. The company will likely continue to blend hardware and software offerings together into enterprise offerings in an effort to broaden its product portfolio.
Dell will also keep PCs as part of the product mix for enterprises, and there could tablet and smartphone products in the future, King said.
IBM, Hewlett-Packard and Oracle also package software, hardware and services as part of integrated services offerings. But Dell will likely differentiate itself by tuning its offerings to the midmarket, said Ezra Gottheil, senior analyst at Technology Business Research.
"The midmarket makes a lot of sense and it's a market ... that's valuable," Gottheil said. "That's a solid business."
Dell won't be like IBM, which offers specialized products to high-end customers and also has a large consulting service. With respect to its acquisition and buy-out strategy, Dell is in a better position than HP, which made questionable acquisitions and went through a failed attempt to separate the PC business from main operations, Gottheil said.