
Dell Said to Near Buyout as Microsoft Talks Deal Financing - dangoldin
http://www.bloomberg.com/news/2013-01-22/dell-said-to-near-buyout-as-microsoft-discusses-deal-financing.html
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ChuckMcM
I am reminded of a comment I heard attributed to Bill Joy which was "Nothing
says 'circling the drain' like one former tech leader buying another former
tech leader."

I see that there are several reports of this rumor floating around, I suspect
that its true and the 'leaker' is someone who is trying to get a better deal
by letting the world know you can buy Dell for $14/share. I expect it is a
positive for Dell to go private again, but I don't know if its in Microsoft's
interest to be part of the game. I expect a successful Dell strategy might be
to partner with Redhat and move their product line to something more standard
with solid Linux support. Which is to say something closer to Supermicro's
strategy but with Redhat on board.

~~~
brudgers
According to the article, Microsoft is not buying Dell. They are financing the
deal - and at $2 billion, essentially out of petty cash.

While there are many possible upsides, the one that stands out is that as a
private entity, they can participate with Microsoft on research without
worrying about Wall Street's demands for quarterly growth. For Microsoft,
inside knowledge of the hardware roadmap will help them maintain leadership in
the Enterprise segment.

As for Red Hat, they didn't earn $2 billion in net revenue last year. And
Linux is certainly not a path to success with consumers or on the enterprise
desktop.

~~~
ChuckMcM
To be clear, anyone who participates in the financing is given fractional
ownership in proportion to their participation. There are a number of reasons
to have fractional ownership, but at this level it is generally strategic.

Dell's strategy seems to be about increasing their enterprise presence. And
that can be achieved in much the same way IBM or HP go about it which is a
combination of software offerings, product mix, and consulting.

At the enterprise software level there is a 'gap' (at least I see one, it may
be bogus) of enterprise level support for Linux systems. Red Hat does software
support (RHEL) but they don't have a hardware business to go along with it. So
if I'm an enterprise customer, and I want to install a Linux server
'farm'/'grid'/'cloud' and I want one team to "own" the support issues, I'm
sort of stuck.

I recently did an evaluation of the HP Gen8 server hardware which was amazing
hardware, but really suffered from a sort of 20th century server mindset. I've
got Supermicro hardware which goes out of its way to be flexible, but I'm
still chasing driver updates in enterprise linux builds (RHEL or CentOS). So
having something a server choice that was strongly aligned to Linux in the
enterprise space, and willing to provide first responder support to driver
compatibility issues, that would be a good addition to the current choices.

And if one of your strategic partners was Microsoft, I expect it would be
uncomfortable pushing a strategy that made Linux a solid alternative in the
Enterprise at that level.

~~~
brudgers
Red hat isn't cut out to be a full stack partner. Not large enough to support
the 38,000,000 PC's Dell sells a year. Indeed, few companies are.

Nevermind that partnering with Microsoft made Michael Dell a billionaire and
the thirty year relationship between the companies. Or the lack of a roadmap
for Linux and a mobile strategy.

~~~
ChuckMcM
I'd be interested in knowing your (brudgers) history with this to put that
statement into context. Your blog doesn't offer much insight.

I ask because the statement "Red hat[sic] isn't cut out to be a full stack
partner" is unsupported. Followed by the comment on "38M PC's Dell sells" in a
year missed the point completely.

The margin in Dell's business is in servers. Not 'desktops' and not 'laptops'
(which may be your primary exposure to the company, but I don't know). The
successful enterprise server companies (IBM, HP, and to some extent
Sun/Oracle) benefit from that 'full stack' support, but one of Red Hat's
challenges has been that no single partner (with the possible exception of
Supermicro) can extract the necessary cooperation from the third party device
makers to get the support they need to drivers. IBM, HP, or Sun can say to
Marvell "We're going to use your SATA controller in our xyz-666-3245-665-/A
controller, if we can get driver source code and 24hr turn around on support
issues." Those agreements will usually put a few exemplar machines inside of
Marvell (or what ever vendor) which will work with the company to insure that
the driver does everything it should and nothing it shouldn't. And more
importantly when it breaks it gives enough information to turn around a fix in
short order. Those relations cost resources and really are only affordable to
companies that have a solid presence in the enterprise space. (or in places
like Google where a lot of servers are being used internally)

Dell using Red Hat for their server OS partner, might feel more comfortable,
and have better pricing control, than Dell using Microsoft as a partner. And
at server volumes and margin points such a strategy is very doable. You could
even play Canonical off the Red Hat guys for a bit of competitive pressure.
All of that is cheaper than building a new distro team in house and not one of
Dell's core competencies.

The more interesting statement though is the last one, _"Nevermind that
partnering with Microsoft made Michael Dell a billionaire and the thirty year
relationship between the companies. Or the lack of a roadmap for Linux and a
mobile strategy."_

That is all accurate, but what is the truth? And this is where we have to
guess. Was the lack of a Linux and mobile strategy _because_ of the partnering
with Microsoft? Or was it just a bad guess? If it was the former, then having
Microsoft own a big chunk is a problem, if it was the latter then you're not
going to get very quality advice from Microsoft based on Microsoft's track
record on Linux and Mobile. Either way, what "was" for Dell may have lead up
to their current situation, but seems pretty clear that continuing on with the
same plan they have had for the last 10 years isn't going to result in
success.

That leaves us on HN taking potshots at these dribs and drabs of information.
Sort of like CIA analysts looking for a plot inside innocuous movements of
goat herds.

~~~
rdl
A strong Dell buying or partnering with Red Hat would make sense for Red Hat
for the reasons you propose, but doesn't really make as much sense for Dell,
and especially not for Dell as it is now.

The commodity Linux server world is going to switch, increasingly, to
Supermicro or even lower margin providers.

The kind of enterprise sales which do bring in big margin and big absolute
dollars for Dell are still Windows (and to a lesser extent, VMware), and
include ok storage and crappy networking/accessories.

I think there's money in USG-scale desktop deployments, but it might just be a
cost of getting the server business; it's hard to separate out "we can cover
all of your desktops AND servers" into separate profitability for each line,
since clearly servers, storage, and services are used to cross-subsidize the
desktop/laptops.

The weakness for Dell is mobile (which Red Hat doesn't touch); Windows Phone
may be a viable partner there, although personally I would have bought RIMM at
the depths of their doom instead.

The other weakness has always been a lack of professional services, but we've
seen how badly attempts at that have worked out for HP, too. What might have
made sense would have been buying mid-market microsoft solution providers and
rolling them into Dell Professional Services.

Partnering more with Microsoft seems like the best move for them to preserve
total profitability; it probably isn't the best for Dell's overall position in
15 years, but I think that ship sailed; the biggest server vendors in 5-10
years are going to be building totally commoditized stuff to public specs, I
believe.

~~~
ChuckMcM
That makes a lot of sense. Seeing it from the Dell perspective a bit more puts
them into something of a sticky wicket. I don't think the Ubuntu phone would
count as a mobile strategy just yet.

Looking over some of the presentations from the Open Compute Summit it looks
like Dell could play there. It has some attractiveness for a vendor that is
operationally efficient. I don't see a lot of Windows support there but that
may be that I just don't look for it for my shop.

One wonders if they get a big cash infusion from selling off their
Laptop/Deskside business to an LG or a Asustek they might carve the company
into a enterprise servers, storage, services (SSS) play. Not sure who would
head it up though from their current management ranks. Alternatively an
OCP/PrivateCloud play for companies that want a more fungible server
architecture. Maybe take some of the wilder work Cutler did on the distributed
computing side and productizing around that.

Not a fun place to be for them to be sure, I will be watching closely to see
what road they pick and how well they execute on it. From such things one can
learn quite a bit.

~~~
rdl
Open Compute type platforms are going to destroy margins. Margins for high
volume servers (i.e. anything where Supermicro can play) already suck so much
compared to the old school "Dell just has to be cheaper than Sun or IBM"
world.

I really think preserving their (dying) enterprise margins gives them better
total profit over the next 10 years, vs. being fast to position themselves for
the bleak low-margin future. It's just like the RIAA labels -- made more sense
for them to eke out $20 CDs for an extra year or four vs. going early into the
MP3 future. Use the cash from $20 CD sales to then sue/force unprofitable
licenses on anyone crazy enough to do music services, later.

The only really good thing about Dell is that they're not HP. HP has strong
channel sales, especially in the middle east/etc., but has probably the worst
corporate governance of any major company, and is generally doomed, too.

------
blhack
What replaced Dell? HP?

Offices are still buying desktop PCs by the pallet-load. What are they buying?

edit: I'll answer my own question:
[http://en.wikipedia.org/wiki/Market_share_of_leading_PC_vend...](http://en.wikipedia.org/wiki/Market_share_of_leading_PC_vendors#2006-2012)

~~~
smackfu
They are also just NOT buying. A five year old computer should run email and
Office just fine. Maybe get a RAM upgrade or something for $50.

~~~
nikster
I think its also about Microsoft and how the company has failed to provide any
real additional value over a Windows XP machine with Office 2001. My corporate
client is running XP with Office 2003 and I really wish they'd stuck with the
2001 edition. Same features, less annoying.

Stagnation in innovation is coming back to bite them.

~~~
OGinparadise
For many of them XP is perfect, a lot of their work is being done online or
custom apps.

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sabalaba
Dell is not being purchased by Microsoft. Silver Lake Partners, a PE firm that
does investments and leveraged buyouts (LBOs), is conducting an LBO of Dell.
Microsoft is merely providing some of the capital for the buyout, which would
likely take the form of a loan to Silver Lake Partners.

Again, Microsoft is not buying Dell, Silver Lake Partners is.

It makes a lot of sense for MS 1. from a strategic standpoint, 2. Microsoft
having tens of billions of cash reserves which need a return, and 3. MS +
Silver lake have a prior relationship: MS purchased Skype from them.

------
confluence
Dell on Apple in '97:

 _> "I’d shut it down and give the money back to the shareholders"_

Dell on Dell today:

See above.

Sound like he heeds his own advice

Have to respect that :)

~~~
thetrb
They're not shutting Dell down...

~~~
chiph
But if they're going to be backed by private equity ... those guys REALLY want
their 20+% return in five years. And they'll direct Dell to shutter
unprofitable or non-key parts of their business as soon as possible.

I expect Dell to be a much smaller company a year from now.

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sandGorgon
Dell desktops and laptops are incredibly popular in India because they are
officially Linux supported (N series) and because of their CompleteCover
warranty, which is awesome.

Macbooks are very expensive out here, plus Apple warranty is really, really
bad.

Surprisingly, the other company which has a decent after sales support is
Samsung (Lenovo sells through resellers, which screws up the experience).

------
nikster
Dell is a surprising addition, but only logical if you consider that every
business partner of Microsoft, ever, was either bought out or killed by
Microsoft. I am still surprised people want to be business partners with that
company. Watch what will happen to Nokia.

------
gamble
I don't see what advantages Dell hopes to gain by going private. Dell has
always been a one-trick pony: reduce the cost of PCs and servers by
eliminating retail operations and manufacturing to-order or overseas. Everyone
caught up to Dell a decade ago. Their problem today is that they provide
nothing distinctive and occupy a stagnant market niche. Are they planning some
sort of outrageously-expensive pivot to Apple-style consumer electronics or a
Nokia-style desperation move to pin all their hopes on Microsoft's mobile
platforms?

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pm90
I hope they don't cancel the ubuntu xps developers edition :(

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shirro
Dell, Nokia, Borders, Blockbuster. The world changes and people shift
platforms. It doesn't matter how good the company is when they don't have
products anyone wants. The enterprise market is still there but not so much
with Dell and it is never going to have the same margins again. Microsoft is
just going to draw this out.

------
incision
I could see a certain benefit to a Microsoft-owned Dell.

It might sound strange to the HN crowd, but I've actually seen more loyalty
toward Dell than MS in "the enterprise" recently.

I could see a strategy around retaining and expanding certain parts of the the
enterprise business being enabled by owning and integrating the entire stack.

------
pinaceae
i don't get what MS is trying to achieve. the market isn't there anymore. so
why prop up a business with outside money?

dell for consumers is done. low margin commodities can be done without that
kind of overhead. a race to the bottom is profitable for while, but then you
reach it and boom.

~~~
zapman449
Dell makes a nice bit of coin (2+bil in profit last quarter according to
google), mostly from the enterprise stuff, hence the kerfuffle over 3Par 2
years ago.

What I don't get is why they're submitting to a leveraged buyout.

~~~
mbreese
It's Michael Dell that's trying to bring the company private. It's hardly
_submitting_ to a leveraged buyout when it's the founder and CEO (who still
owns ~ 12% of the company) leading the effort.

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jbail
I haven't bought a Dell PC since 2000. It was a piece of junk. Their support
was also junk. I'm curious if this has changed in the past decade. Anyone
bought a Dell recently that wants to weigh in?

EDIT: Guess not (which isn't too surprising)

~~~
to3m
It's hardly scientific, but both my parents have Dell laptops, and they seem
happy enough with them. I'm not a big fan of the plastic construction, having
been spoiled by my metal Macbook, but they seem solid enough, and apparently
there's always some special offer of one kind or another to take advantage of,
so the prices can be very reasonable.

And my old employer bought dell desktops. I guess they had some bulk deal or
something. They always seemed basically fine, and felt pretty solidly put
together - I wouldn't have wanted mine to fall on my foot. Some of the staff
had dell laptops, and nobody seemed to have much to say about them one way or
the other. Which is probably exactly what you want, really...

I can't speak for older Dell stuff, nor for anybody else's experience, but
I've seen no evidence that their computers are worth avoiding.

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antidaily
I'm sure Dell would have preferred Microsoft give them an OS that people would
want to buy PC to use. But this will do.

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Nux
Cool. Secure Boot for all your dell stuff.

------
redwood
Microsoft will now have their hands in 1) Facebook 2) Nokia 3) Dell

Interesting

~~~
bluedanieru
And all that without making anything anyone gives a shit about :-)

