Although the full consequences of Dell’s leveraged buyout (LBO) will take time to become clear, Adrian O’Connell, research director at Gartner, lays out some of the key impacts of the deal.
In the research note, Dell’s Leverage Buyout Necessitates Scenario Planning for Customers, O’Connell says Gartner believes Dell wants to remain in the client computing business. The involvement of Microsoft in the LBO may also point toward renewed joint efforts in areas where the two companies have struggled before; namely, tablets and smartphones.

“Dell has been strategising to reinvent itself as an enterprise solution provider,” he says.
“A perception still remains of Dell being a ‘PC’ company, and in fiscal 3Q13, mobility and desktop PCs still accounted for around 49% of Dell’s total revenue. Dell’s PC business is important to the organisation because it generates a lot of revenue and cash flow. Low margins mean that the PC business is not enough to sustain or grow the overall company.

Although Dell has stated in its public filings that the end-user computing/PC business “continues to be an important element of our strategy”, these areas should be viewed with a degree of caution.
PC customers have no need for near-term (at least for 2013) action, but will need to monitor the situation for danger signs, such as delayed deliveries, incomplete or improperly fulfilled orders or lack of account team responsiveness.

“PC customers should carefully monitor these and other factors, and establish alternative plans with other suppliers if the need arises. Ensure contract language enables OEM switch without penalty, so that an alternative plan can be initiated.
“Although the PC business is likely to remain important to Dell in the near term, the low-margin consumer PC business could be more at risk. This area has the greatest competitive cannibalisation challenges.”

Beyond the short term, the LBO is expected to have an impact on rationalisation, renovation and repositioning of product and service offerings or divestments, particularly in low margin areas.

O’Connel points out that details on specific plans are scant but, in all cases, enterprises should make sure they are aware of current, planned and contracted performance levels with specific timelines for deliverables, and regularly review these with their Dell representatives.

“Dell has a lot of work to do; clients’ need to know how this will impact their ongoing operations and determine whether long-term engagement with Dell is viable,” he says.

O’Connel adds that the broad strategy of evolving to more of an enterprise solution provider will remain intact.
“The question of timing, though, will be an increasing variable.
The LBO may see Dell accelerate some of the rationalisation processes. The areas that Gartner identifies as being of most strategic importance to Dell, and so those likely to see the most investment, are security, infrastructure software, networking, storage and servers and service coverage and capabilities.
“The areas that are most at risk are those with low margins, such as consumer PCs, and those with the most overlap,” he says.

“The journey to become an enterprise supplier does not inherently mean a lack of focus on the client computing side of the business. Although some areas, such as consumer PCs, could see a withdrawal, the presence of Microsoft as a key investor could indicate a renewed push into areas such as tablets and smartphones.

“Users should design scenarios using a number of factors including, but not limited to, the size of their investment in the given technology area, the amount of overlap within Dell’s portfolio, the level of commoditisation and margin profile of the technology area, and time frames considered for the investment.”