David Yoffie - Strategy: Taking Dell Private
Michael Dell and the private equity firm Silver Lake today walked away with their prize, the computing company Dell, having won the approval from a significant majority of shareholders to take the company private in a $25 billion leveraged buyout.
Success for Dell as a private company — which it will be within a few months — is by no means assured. Simply put, the plan calls for Dell to double down on investments in research and development and acquisitions that will be intended to expand its reach into enterprise-focused businesses including software, services and cloud computing. The personal computer business — both consumer and business-focused — which accounts for most of Dell’s revenue will become less of a focus.
- In 1984, Michael Dell founded Dell Computer Corp. Dell sales grew from $6Mn to $40Mn in the first 2 yrs. - Dell focused on low cost (often customized) configurations and shook up the whole sector. - In June 1988, Dell goes public selling 3.5Mn shares @ $8.5. - With the crash in 2000, Dell cut significantly price thanks to its low inventory and no R&D. It gained market share. It became the top PC-seller with 13% of global sales and grew to 20%. Net Income hits a new high of $3.0Bn in 2004. At that time M. Dell step down and Kevin Rollins becomes CEO. By 2006, Net Income falls by almost 30%, share price goes down and in 2007 M. Dell comes back as CEO. - By that time, several trends in the industry start pressuring Dell’s business model: declining values of customized PCs, surge in consumer sales in retail channels, PC production from emerging markets, and the rise of smartphones. None of Dell’s changes and initiatives works. - In 2005, profits goes down by a 33% and share price by 60%. - In 2008, Dell initiates a drastic turnaround, moving away from low-margin computers, to higher margined consulting, data management, and software as a service. From...
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