Dell deal reflects PC world in turmoil

San Francisco (dpa) – When rumours first started circulating in mid-January that billionaire entrepreneur Michael Dell was planning to take the company he founded into private ownership it was easy to understand the basic logic behind the 24-billion-dollar deal.

Dell had once been the world’s top computer maker. But as the growth of smartphones and tablets coincided with a slumping world economy, Dell’s position in the rapidly shrinking marketplace had been nosediving.

A report by research firm Gartner issued January 14 showed that PC sales in the crucial fourth-quarter had plummetted 5 per cent from a year earlier. More worrying for the Texas-based company was that its share of the shrinking world market had nose-dived by 21 per cent compared to a year earlier as the dwindling numbers of computer buyers opted for low-cost notebooks from firms like Lenovo and Asus rather than the higher performance machines offered by Dell.

Like most of the major shifts that have ever occurred in the PC world, the catalyst of change could be traced back to Apple. Its launch of the smartphone revolution with the debut of the iPhone in 2007, and the tablet revolution with the iPad in 2010 completely transformed the market.

”Tablets have dramatically changed the device landscape for PCs,” said Mikako Kitagawa, principal analyst at Gartner. ”Whereas as once we imagined a world in which individual users would have both a PC and a tablet as personal devices, we increasingly suspect that most individuals will shift consumption activity to a personal tablet, and perform creative and administrative tasks on a shared PC.

This transformation will continue until the number of PCs in use declines to an amount that makes tablets the primary consumer device, Kitagawa said.

With no appealing tablets or smartphones, Dell’s trajectory for success in a post-PC world involves moving higher up the technology value chain. The company already has a strong relationship with businesses and the public sector. It now hopes to leverage that to become a one-stop-shop supplying PCs, servers, cloud-based storage and other high level technology services.

Such a move makes strategic sense to Carter Lusher, the chief IT analyst at Ovum. But it will not be easy to pull off against established giants like IBM, not to mention Hewlett-Packard, which is also chasing the business sector as the PC market withers.

”Dell is in the midst of a wrenching transition from a supplier of commodity hardware, mainly traditional PCs, to being a supplier of enterprise-grade IT infrastructure. Dell’s ambition is nothing less than offering the entire IT stack with supporting services,” Lusher said.

A significant risk the company is likely to face is that enterprises and public sector organizations could cut back on their purchases, he added.

That doesn’t mean that Dell will exit the PC market. A 2-billion-dollar loan from Microsoft more or less ensures that the company will continue to churn out millions of PCs every year.

In the past Michael Dell was viewed as an industry wunderkind – on the basis of his success in turning a company he founded in his college dorm with 1,000 dollars into the world’s largest computer maker, beating industry giants like IBM and Compaq and building a market cap of 100 billion dollars.

He stepped down from hands-on leadership in 2004 with the company at its prime, only to return three years later as Dell started to flounder. But he was helpless in his quest to reinvigorate Dell in the face of the changing market conditions and the company’s value has more than halved since then.

Dell, 47, is no kid anymore. But if he succeeds in his latest gambit to transform the company, the wunderkind label will be richly deserved.