After a couple of days in Austin being hosted by Dell, a longtime client, at its annual analyst conference last week, I thought about what’s changed at the company since it went private seven months ago. Of course, Dell managers were anxious to put their best foot forward. And even the CFO, Tom Sweet, didn’t get very specific about numbers, now that firm is no longer required by Securities Exchange Commission (SEC) rules to make uniform reports.
You might ask, “Why not?” since it hardly matters what the financial figures are. No one can trade on them anyway. And yet, not having to report is a competitive advantage. If Dell lowers its pricing, rivals such as Hewlett-Packard and Lenovo can’t tell how badly Dell’s margins are hurting. It’s like the marathon runner who holds his breath as he’s passing someone, making his competitor think that he’s not even breathing hard. It’s part of psychological warfare. Why not use whatever tools you have at your disposal?
Over the course of two days, through presentations by founder and CEO Michael Dell, his many minions, and longtime stalwarts like Vice Chairman Jeff Clarke as well as by product and segment managers, during conversations over dinner and drinks and formal one-on-one discussions, several themes emerged that clearly demarcate Dell history into distinct eras: BP and AP (before and after going private).
Aside from the already well-observed change in Michael Dell’s demeanor (he’s much more relaxed than when Wall Street was breathing down his neck), the company seems to have attained a new, more vigorous stride. Although numbers that the company released were mostly relative (e.g., some business is growing at 3x the rate that it was before), in the room one could feel a palpable sense of renewed momentum.
IDC figures reflect Dell’s market share growth in PCs over the past five quarters, and this share gain is accelerating. And while we’re talking about PCs — which have been much pooh-poohed in recent years as markets for other form factors, notably smartphones (in the form of first Apple’s iPhone and then Google’s Android phones) and tablets (again, first Apple’s iPad and then Google’s Android tablets) have taken off — this under-sung, well-beaten-up market still managed to ship 315 million units last year. And suddenly, it’s reinvigorated. Tablet sales have slowed, for whatever reason, and PCs are picking back up.
“Why is this?” you might ask, and there are many reasons, but one of them is structural: PCs are still used for most real work (and most people still have to work for a living). Another is transient: Microsoft just stopped supporting Windows XP on April 8, and 300 million XP machines need to be swapped out in the next couple of years at most. This extra flood of purchases, added to an ambient level of shipments of around 300 million, could add anywhere from 50 to 100 million units to the 2014 figures.
And Dell is right there to harvest its share (and then some) of this revived market. Jeff Clarke was practically strutting as he described from the main stage the company’s strengthening position in various countries, product categories, and customer segments. The company passed out tie-dyed “Keep Austin Weird” T-shirts to everyone, and Clarke was wearing his, along with a fine pair of cowboy boots, which made his strutting all-the-more emphatic.
But it wasn’t just management. Employees at all levels seemed focused and energized. Sweet talked about being released from “the 90-day cycle” and being able to enjoy a “longer-term time horizon for paybacks” on investments. He noted that R&D investment had risen at the company from 1.6% to 2.1% of revenue year on year, as Dell focused on building the business rather than having to meet artificial profit expectations. He also said the company reduced its debt, piled up during the go-private transaction, by $1 billion in the first quarter of this year. So, cash flow is pretty good. And Sweet is still looking to reduce operating expenses by another $3 billion, which the company will use to both maintain price positioning in existing markets and make further investments in new ones.
There were a few financial analysts at the event. Not as many as when the firm was public, but its bonds are still traded, and Wall Street remains interested in its performance. Those waiting for it to go public again, though, may have to wait awhile. Dell is making money, taking share, getting out from under its debt, and enjoying the freedom to make decisions without being second-guessed by equities traders.
And here we are 700 words in, and I haven’t even started talking about all the new areas in which Dell is investing and establishing or consolidating its position: post-PC areas like tablets (both Windows and Android), enterprise solutions like converged datacenter products, OEM relationships with companies like Google, Siemens, and Emerson, new partnerships, acquisitions, and channels. On that last, the former direct-selling, channel-bashing Dell has never had such good relations with channels as it does now. Fully one-third of Dell’s commercial business (which is half the company’s revenue) goes through channel partners today.
The company did show future products in a “whisper suite,” the only part of the show under non-disclosure. So, I can’t say much, but what I can say is innovation is alive and well at Dell. Development will continue on both organic and inorganic fronts; that is, Dell will both fund internal development and buy and invest in more companies to gain intellectual property that will help it fill out its portfolio of products and services. In this regard, software is a big focus, as Dell ramps up its capabilities in an attempt to match more-established enterprise suppliers like IBM.
As with any prediction, Dell’s future still has plenty of uncertainty. A lot can happen between the spoon and the lip. But the firm gives off an aura of having turned a corner. It has a broad portfolio of enterprise solutions and consumer and commercial endpoints, its people are motivated, and its financial house is looking fairly orderly.
I’d say the stock is a buy. Oh wait. No it’s not.