Dell PCs – On the block.

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Taking on Dell’s PCs is an exciting but risky proposition.

• While all the focus is on Dell’s proposed purchase of EMC, Dell seems to be using this opportunity to again explore getting rid of the PC business.
• This makes complete sense as it is clear that Dell now wants to become an enterprise player to challenge the likes of IBM and HP Enterprise.
• The last thing it wants to worry about is a millstone of a PC business that it has been unable to really do anything with over the last few years.
• When Dell went private in 2013 I saw two possibilities for the PC business (see here).
• It could either invest heavily in R&D to make its PCs powerhouses of desirable beauty or sell the unit to pay down the debt incurred at privatisation.
• It has done neither and the PC business has chugged along in 3^rd position earning commodity margins.
• However, with Dell now likely to have as much as $60bn in debt, and a renewed focus on the enterprise, this issue comes to the surface once again.
• The PC market is having a very difficult time with Q3 15A showing another YoY decline and the doom-mongers all predicting the death of the PC.
• The reality is that the PC market has had it very easy for 20 years as users who just wanted to do basic stuff ending up buying a machine that was hugely over specified for they wanted.
• The advent of the smartphone and tablet meant that these users no longer need to have a PC and it is their failure to replace their PCs that has caused the softness in the market.
• However, the other 75% of the user base (50% corporates and 25% content creator users) still needs the power and input capability of a PC and I do not see these users leaving.
• Devices like the iPad Pro are simply not good enough for these users and I do not see an enormous amount of demand for this product.
• Consequently, I don’t see the PC market dying but it could very easily be flat for some time to come.
• To make matters more difficult the dynamics of this market have changed with Microsoft and Apple showing users what is now possible with personal computers.
• Sleek, nice looking form factors are increasingly popular but necessitate an investment in R&D that the existing PC makers appear to be unwilling to make.
• Instead they continue to rely on their manufacturing partners to design their products and the result is a series of blocky, ugly devices into which very little thought has been put.
• Hence, I think that Dell trying to sell its PC business is a very interesting opportunity.
• This is for 2 reasons:
  • First. The PC market is ripe for change and on their own Microsoft and Apple and are not going to able to do much.
  • Furthermore, I suspect that Microsoft is likely to be very supportive of any manufacturer that gets serious about offering a series of devices that gets users excited about PCs again.
  • I think that this could kick-start a replacement cycle where the obsolete laptop is replaced with something better and healthier.
  • Second: Dell has now nailed its flag to the enterprise and I suspect will be willing to offload its PC business for a very reasonable price.
  • Consequently, for someone with vision and deep pockets, this could be a great opportunity albeit one that is quite risky.
• I understand that Silver Lake has already approached Lenovo, HP and Huawei regarding the PC business but that is not where I would see the potential interest.
• Instead a company with a better understanding of the consumer, willing to invest in R&D and a strong emphasis on design is likely to be one that has a chance of pulling this off.
• I had thought that Microsoft could be one to take this on, but its’ recent more cautious approach to hardware looks to have tempered any potential appetite for something of this scale.