Dell announced that it has agreed to a deal for a buyout worth $24.4 billion. In some quarters, the privatisation of Dell might be seen as a step back. It is certainly true that Dell remained some way of its target revenue communicated some years ago, aiming to become a $60 billion company globally. It does also mean that the company might find it easier to create the breathing space to restructure and commit to a long-term strategy without the quarterly financial rat race.

Transitioning from volume to value

Dell has been targeting more margin-rich areas to secure long-term profitable growth but has seen limited success in some areas, namely services, for example. It also meant that it took its eye off the ball in some respects when looking at high-growth consumer (and commercial) markets such as tablets: a major profit pool as it turns out.

Additionally, Dell also had to focus internally with a plethora of acquisitions over the past few years focused on security, services, and software in the main. While the investments were driving the company into the right higher-margin business, helping the portfolio become end-to-end solutions and largely match the set-up of the IBMs and HPs of this world, not all of the acquisitions have had an impact on the business.

Moreover, the company had to adjust from one mainly focused on the effectiveness of processes and logistics to one owning and needing to develop IP for its products. In terms of partners, the direct model has turned into a mixed model.

The frequent internal organisational changes that appeared to happen periodically, mixing up regional, country, product, technology, and company size responsibilities, are testament to some of the internal struggles Dell’s leadership was having in managing the company and the complex environment. Putting these issues in the same pot mixed with the financial pressure made life more challenging than it might have been.

When looking at the regional and country picture, Dell’s performance has been more consistent in some areas, such as the x86 space, but heavily biased in others, such as storage, where significant success and market share is centred around very few countries. Positively, that also points to a good deal of opportunity in various areas if the successful approaches can be replicated.

Managing the portfolio opportunities

Looking at some of the business areas, compared with the size of the server and networking unit, Dell’s storage business doesn’t seem to be all that significant in size. Dell needs to aspire to grow further as an enterprise IT infrastructure provider to effectively compete against HP and IBM as well as all the converged stacks from various vendors, and storage plays a key role here. This strategic course is very well reflected by the multiple acquisitions in the field of storage systems and software that enabled Dell to build out its own capabilities rather than relying on EMC technology.

While the company created a strong portfolio and a compelling long-term vision, Dell still commands only a single-digit share of the growing and highly lucrative EMEA storage systems market, projected to surpass $8 billion by 2015. This private buyout provides Dell’s new top management with the opportunity to take a step back to appreciate the situation and what needs to be done for Dell storage to gain market share in a cutthroat market. Go-to-market structure, geographical coverage, and sales bandwidth must take centre stage.

On the client computing side, Dell maintained its strong position in the commercial PC space and remains the number 2 PC supplier after HP to businesses in Europe. The consumer space, however, is where Dell has been struggling for the past few years in EMEA and where the company continues to lag behind, particularly in terms of product innovation, which is the key driver for the mobile device market today and the success of the players at present.

This prevents Dell from positioning itself successfully in the consumer space and it will also eventually weaken its positioning in the business space as boundaries continue to blur with increasing BYOD trends impacting the commercial client space. It remains to be seen what strategic directions will be taken in the device space and whether the investment from Microsoft will translate into a stronger focus and increased investment in terms of innovation in the overall client computing space.

In fact, it could combine with Microsoft’s own apparent ambitions in the hardware space in its attempt to regain some share in the device and content management battle against Apple and Google. The alternative, much like in the printer space, is to divest these units that are struggling more than the datacentre-focused areas.

Talking about Microsoft, a fascinating angle for analysts — and interesting for customers — relates to the direct investment Microsoft is making in the company. In EMEA and elsewhere, Dell and Microsoft have been working extremely closely in both the PC and the server business. During the first three quarters of 2012, IDC estimates that almost 300,000 Dell PowerEdge servers were shipped to be used with Microsoft Windows Server operating system, generating revenue in the hundreds of millions of dollars for the ISV.

On the PC side, Dell shipped 10 million PCs in 2012. At the same time, Dell is a key supplier of datacentre technology and hardware to Microsoft, when the former acts as a cloud service provider — also in Europe. Arguably the leading supplier of servers and related maintenance services to hosters and public clouds in EMEA, Dell has a significant influence on how Microsoft is seen in the region.

I believe that these interdependencies between the two companies make the $2 billion loan from Microsoft reasonable. How and if the investment (relatively small on a total of $24.4 billion) will influence Dell’s activity is unclear, but I would not expect any major change in the next 12 months.

In imaging, Dell remains a minor player that has focused on the low-growth segments by positioning its products on more-for-less, aimed at SMBs and the home. Dell does not own the technologies it sells and relies on other vendors such as Samsung, Lexmark, and Fuji Xerox, which provide the engine that Dell rebadges. As a result, it has been difficult for Dell to innovate in this area and it lags behind its competition in terms of new product features and integrated solutions.

Dell printers and MFPs are sold mostly in the sub-$200 price band where it competes against Samsung and HP, adopting a more-for-less positioning. Samsung has been more successful than any other vendor in penetrating the consumer market in Europe in a very short time, using innovation but mainly aggressive pricing to gain market share, in direct competition with Dell, Brother, and HP.

Without capturing high volumes of pages through the sales of higher-end printers and MFPs, this strategy damages the profitability of vendors, as illustrated by Kodak’s exit from the market and Lexmark’s withdrawal of inkjet and the entry-level market. Dell has not paid enough attention to the high-margin potential that imaging products can bring thanks to the sales of bundled services and solutions. Managed print services are growing at an average +20% year on year in Europe while imaging hardware remains flat at best.

Next steps

Overall, Dell has increasingly managed to scale up its visibility and impact in topics such as cloud and datacentre transformation. Dell’s server business keeps growing and is eating away at the competition. The key strategic topics Dell is covering — cloud, convergence, mobility, and data insights, presented at the Dell Technology Camp 2013 just last week — reflect the main talking points and in most but not all areas, the acquisitions, products, and solutions make Dell’s approach real and not simply a talking point.

In EMEA, surveys support the emergence of Dell as a major cloud technology provider as well as one of the major strategic IT suppliers. It continues to make good inroads in the service provider space and is using the acquisitions to position itself not just as a mobile device supplier but workforce management company (e.g., KACE), not just as a server/storage supplier but as a systems management and automation full service shop (e.g., Active Infrastructure based on Gale).

I still believe, however, that to make it to the higher-margin space, Dell needs to add the services component: consulting services to address clients’ burnings issues and capabilities to design and implement the solution. Dell has these capabilities, albeit at small scale, in Europe, but it continues to see these as a “wrap” for the technology, not an integrated part of the “solution” itself.

Technology isn’t a solution to anything until it is packaged and fitted to the clients’ needs, and the low focus and limited success of services (apart from support) in Europe is a limiting factor. Perhaps going private will give Dell a bit more time to rethink its European services and solutions strategy to make deeper changes in how it goes to market.

It is too early to say which steps Dell can and will take in the next few months without having absolute clarity that the Michael Dell/Microsoft/Silverlake buyout is accepted. The company, customers, and the industry have to wait 45 days for ratification. At the moment, there doesn’t seem to be another bidder or investment consortium on the cards bettering the offer.

It does mean that we will see very little action in the near term. And that’s probably a period that the company wants to pass as quickly as possible and move on to formulate short-term actions and long-term growth strategies. The key to success now and in the future is Dell’s focus on the customer and partners. Offering support and advice and building confidence is key to ensuring that Dell will be around for the next 30 years.