In the ‘90s Dell was the darling of the PC revolution. By taking orders over the phone and sourcing parts in bulk, Michael Dell was able to provide custom-built desktop computers at cheaper prices than the off-the-shelf competition. The company expanded rapidly, as more and more everyday processes became automated. The development of the internet turbocharged this movement.
But Dell’s approach didn’t work well with laptops, much less tablets. Now Dell’s model seems a quaint artifact of another age. His push into servers seems reminiscent of Sun’s dominance there. That didn’t work out so well.
Still, the company has generated loads of cash over the years, which they have efficiently destroyed by buying their own stock back and watching the price go down. Now the founder says he wants to take the company in a new direction, but where? I confess myself bewildered over these fights over decimals. The real question isn’t whether 13.6 or 13.8 dollars a share is fair, but whether Dell can even survive as a going concern.
Computing has changed. Mobil platforms are being supplanted by an internet of things. If Dell doesn’t want to be sold for scrap, they’d better do something new.
Douglas R. Tengdin, CFA
Chief Investment Officer