I was chatting with Michael Dell the other day about what resources were critical to his turning around Dell. He declined sharing his turnaround experts, I think because he doesn’t want anyone to recruit them, but he did share that Jeff Clarke was critical to the effort, and that he considers him a co-founder. So, it was with some shock that I read the re/code piece with a picture of Dell talking about shopping the Dell PC unit out.
It brought back a bad memory of IBM’s PC unit. You see, back when this unit was in IBM (it is now part of Lenovo), I was always getting into arguments with the top PC Company executive on whether that division was going to be spun out or sold, as it seemed obvious that Sam Palmisano, IBM’s then CEO, was on that path. The literal week that I was finally beaten into submission that it wasn’t going to be sold was when that sale was announced, making me feel damned stupid. But contrary to that memory (I wish it would go away), Dell is no Palmisano and there is no indication that he wants to sell off Dell’s PC unit. So what the heck is going on?
IBM/HP PC Unit Sale Spinout
Now that IBM and HP have both sold or spun out their PC units, it isn’t hard to understand that folks would assume Dell would do the same. A trend is a trend. But you have to understand the motivation behind both moves. IBM’s PC division, at the time, was struggling in the market, carrying far too much cost and starved for both marketing dollars and R&D, under a CEO who didn’t want to take product risk. It was floundering. Once it was sold to Lenovo, which reinvested in it, the result was night and day; Lenovo eventually passed HP for market leadership.
You really can’t get the HP move until you realize that CEO Meg Whitman would make an estimated $51M if HP is sold to someone else, making Whitman redundant. It did appear that the firm was being marketed to EMC for some time and that Oracle might be interested. They may have been neutral on PCs but they likely didn’t want printers, which were on the wrong side of a technology curve. Since much of the shelving (retail) organization for PCs is shared with Printers, Whitman apparently decided to spin both out along with most of the debt to make HP a better acquisition target. It isn’t hard to argue that this was to get that massive $51M payout, which would have offset substantially her costs for her failed California Governor run. This likely explains why Whitman is so upset at the moment.
Dell Is Massively Different
The fact that Dell is private makes it harder to determine its success, but it represents that not only isn’t its PC unit in trouble, it is showing strong growth. In addition, unlike Palmisano, Dell himself created the PC business and thus sees it as a critical part of Dell’s framework. With HP splitting up, there is a huge opportunity to sell into HP accounts, which are likely concerned about the changes HP is undergoing, particularly those accounts that bought into HP as an end-to-end vendor. So, even if Michael Dell wanted to spin out PCs, he wouldn’t do it right when a huge potential upside was made available.
I noted earlier that Dell views Clarke, the guy who runs the PC unit, as his effective right hand, which wouldn’t be the case if PCs were tanking. Finally, with the HP change, Dell remains the only technology vendor with a full end-to-end solution at enterprise scale and, given the success of Lenovo, which is moving into this same place, getting rid of PCs would have Lenovo standing alone and Dell vulnerable. That just wouldn’t make sense.
Finally, Michael Dell is a founder and the company bears his name, so if he was interested in a quick payday, he would have sold Dell off, not taken the company private and, most recently, moved to buy EMC. (I should point out that EMC has also showcased a need for clients for its VCE effort, which is typically an end-to-end solution, but when it comes to thin client implementations, which have been surprisingly popular, it lacks the client piece without Dell.)
So virtually none of the conditions that caused the IBM and HP moves exist in Dell. To the contrary, Dell appears to be using both moves to its advantage.
Wrapping Up: Silver Lake
As the re/code article eventually points out, it wasn’t Dell shopping the PC unit, it was some staffer at Silver Lake who owns a large position in the company. It isn’t unusual for major investors, particularly those on the board, to explore options. And with the recent HP sale, the fact that they might ask if anyone would buy Dell’s PC unit shouldn’t be a surprise. But Silver Lake doesn’t control Dell and apparently its effort didn’t bear fruit anyway, so there is no indication that Dell plans to sell the PC unit.
I actually had a chat with Clarke himself prior to writing this piece. He reiterated how and why Dell’s PC unit is critical to the company. It goes to the firm’s strategy of being the best end-to-end technology provider in the world and the realization that it can’t get where it wants to go without PCs. Though, were I that guy from Silver Lake who created the re/code piece, I’d likely start running if I heard Clarke, or Dell for that matter, was dropping by for a visit. Just saying…
Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm. With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+