Blackstone Drops Dell Bid, Cites Declining PC Market 137
An anonymous reader writes "The Blackstone Group has notified Dell's board that it has ended its bid for the company after performing 'due diligence' on Dell's books. The private equity firm gave two reasons for its withdrawal in a letter to the special committee of the board reviewing privatization offers: the 'unprecedented 14 percent market decline in PC volume in the first quarter of 2013' and 'the rapidly eroding financial profile of Dell.' IBM's recently announced intention of withdrawing from the x86 server market may have also spooked investors. Blackstone was one of two outside bidders that emerged after founder Michael Dell and Silver Lake Partners announced a deal to take the company private for $24.4 billion. The remaining bidders did not comment on Blackstone's withdrawal; however, the Bloomberg piece notes that Dell's original deal with Silver Lake Partners contains language preventing the latter from backing out."
Dell poisoned their brand (Score:4, Insightful)
Re:Dell poisoned their brand (Score:5, Insightful)
They once had an appealing brand, which gave them an advantage over all the other people who were selling an indistinguishable product.
The reason Dell became big was because of really good just-in-time manufacturing control.
The biggest selling point for computers back when Dell became big was the CPU and its clock speed. It was also the fastest-depreciating component of the computer. In order to get good prices you needed to buy them in bulk, but if you stockpiled them and then took six months to sell them you'd be wiped out by the depreciation (you pay $1000 for a CPU that is worth $300 in six months).
Dell did build-to-order, mail-order, and just-in-time extremely well.
Build-to-order means that you don't end up with 47 models where you end up with 10 that don't sell well and have to be sold at firesale prices. It means that each customer gets exactly the computer they want, at the lowest price possible for that computer (well, assuming they want to buy a copy of Windows and MS Works). Their very-friendly website meant that people didn't have to walk down rows of PCs at the local retailer and try to compare the 47 different models their competitors were selling.
Mail-order means that they had little warehousing/distribution, which means less PCs stuck depreciating in the pipeline between consumers and the manufacturing plant. If they didn't sell as many model 3 video cards they just didn't order that many - they didn't have 30,000 PCs with those cards sitting in stores all over the country depreciating.
Just-in-time means that the part comes in from Intel/etc the day before it gets mailed out as part of a PC, or close to it. Again, inventory is rapidly depreciating, so you don't want to sit on anything. They were able to react to changes in the market - they didn't have a stake in one model or another selling better - they could just go where the customers were. If they offered a particular model and nobody bought it they didn't lose much, because they didn't build it until somebody ordered it.
Things like this are what made Dell big. Everybody else figured out what they were doing, and the MHz war wound down making the CPU less critical and slowing down depreciation.
Note - I'm not particularly close to the PC hardware market, so if there were other factors I'm all ears.
The end of Wintel (Score:2, Insightful)
Dim-bulbs will dribble on about Intel's and Microsoft's current profits. The irony is that the doom of the traditional PC marketplace is fully visible within the same. The Intel Tax (no decent CPU unless you spend 200 dollars) and the Microsoft Tax (no per-seat licence for the OS+Office unless you spend a fortune each year) means the entire world is ready for lower cost alternatives, none of which can possibly be provided by a future Intel or Microsoft.
Dell attempted to take the changing market head on by readying the ultimate in thin clients that would do the real work on the cloud. This thin client is a ultra-cheap ARM based product that replaces the traditional PC. Of course, Dell was looking for suckers who would then pay a fortune each year in 'cloud' fees to access traditional PC software remotely. The Microsoft Tax one stage removed still costs the same or more.
Those of us with a memory know the last great change for Dell came when it stopped developing its own proprietary PC hardware, and switched to using pre-made components from the Far-East. The birth of the 'generic' PC. Of course, as Dell grew, it once again reached the point where it could spec its own design of MB and PSU when useful.
The problem with the PC market today is massive over-pricing of key components, especially the Motherboard, CPU, and to a lesser extent the RAM and HDD. Compare the inners of your desktop PC with, say, the Raspberry Pi. Yes, there is a massive performance difference, but mostly because the Pi is based on a poor, obsolete ARM SoC. Switch that part for a quad-core A15, and a tiny card like that is a perfect replacement for the desktop PC used by 99% of people.
ARM tablets using similar tiny computers now have 2GB of pretty fast RAM, a GPU (graphics) powerful enough for everything but mid-end gaming, and 4-cores of CPU power that rival the early 2-core AMD processors that still make XP run acceptably fast today. Remember, the ARM parts can do the Windows 7/Windows 8 like screen acceleration in their sleep.
So where do companies like Dell go? Dell tried the non-PC product market big-time, but always failed to make an impression. Dell produced the world's most popular PDAs, but never built a lasting success. Why? Because like all big PC companies, Dell is predicated on GREED. The idea that the PC market will forever soak its customers with horribly high prices, and thus massive profits. Dell loved its PDAs while they could charge obscene prices for them.
Today, even the cheapest current Android tablets can be plugged into a monitor and mouse, and potentially make for an excellent desktop computer for the majority of users. Today, all that prevents this is a lack of default desktop functionality in Android and Android apps, but this is on the verge of changing. Desktop shells and windows environments are being crafted for Android at an exploding rate. We are only a year away from Android being seen as a desktop replacement for Windows.
What can companies like Dell do in the face of this? Dell needs its relationships with Microsoft and Intel, and the three of them need continuing obscene levels of margins.All they can do is hug each other ever tighter as they fall off the cliff together.
PS the x86 market will continue for years to come, but in a very different way. AMD is producing the model for the future, small efficient Jaguar cores that integrate excellent graphics on the same die, and can provide desktop like PCs using tiny laptop like motherboards. The complete boxed desktop PC, minus HDDs and display, but with integrated RAM, needs to be 150 dollars or less, and only AMD can bring this price-point with enough performance. High-end gaming PCs have got pretty much as fast as they ever will be from a CPU and RAM bandwidth POV, and will represent a declining market in the face of the new consoles from Sony and Microsoft. It is uncertain how long the manufacturing market can continue to support the traditional gaming PC, when the components for such PCs are used by fewer and fewer ordinary computer users.
Comment removed (Score:4, Insightful)