Dell (Nasdaq: DELL) Chief Executive Officer Michael Dell, seeking to rally employees amid buyout negotiations, said he’s made headway in efforts to transform the computer maker into a broader provider of business products.
Dell said he intends to swipe the No. 1 market-share spot in servers from rival Hewlett-Packard Co. this year, according to a memo obtained by Bloomberg. He also said that he’ll step up investments in personal computers, tablets and emerging markets even while seeking to cater more to business customers, reiterating plans outlined in a March 29 regulatory filing.
The CEO’s memo yesterday lays out his plans for burnishing Dell’s lackluster performance, including boosting PC investments; pushing deeper into Brazil, China, India and Russia; and staffing up in research and development and sales to penetrate corporate data centers. Dell is seeking to take his company private in a $24.4 billion leveraged buyout led by Silver Lake Management LLC and weighing counterproposals by Blackstone Group LP and billionaire investor Carl Icahn.
“We’ve made so much progress in building out our enterprise capabilities,” the CEO and founder wrote.
Michael Dell will only consider backing a buyout by Blackstone Group LP if the private-equity firm guarantees he can remain as CEO, according to a person familiar with the discussions.
In several recent meetings in Austin, Texas, with Chinh Chu and David Johnson — the Blackstone executives overseeing the firm’s bid — Michael Dell said he would be more likely to support their proposal if he retained an influential role, a second person familiar with the talks said.
Dell, in last week’s filing, gave his rationale for seeking an LBO rather than remaining a publicly traded company. Making the needed investments while trading on public markets would be “poorly received” by investors because that would “weaken earnings and cause greater volatility” in the stock price, Dell told the board during a presentation in December, according to the document.
In the memo, Dell said he’s asked the group led by enterprise-solutions president Marius Haas to lead the effort in fiscal 2014 to unseat Hewlett-Packard in servers, the powerful machines that handle demanding computing tasks.
“It is an exciting and achievable goal, which will put us in a strong position,” he wrote.
Hewlett-Packard had 26.5 percent of global server shipments in the fourth quarter, followed by Dell with 21.3 percent of the market, according to market researcher Gartner Inc. Dell sees server sales as an effective platform on which to sell other high-margin data-center gear, such as storage and networking devices, that Dell has acquired.
The turnaround plan would also seek revenue growth in PCs and tablets instead of protecting profit margin, while adding engineering and sales staff to compete for customers’ spending on data-center software and equipment, Dell said in the memo and regulatory filing.
Dell’s board is predicting another year of lackluster growth in fiscal 2014 as demand for PCs ebbs. Sales for the year ending in January will slip to $56.5 billion, and Dell’s PC business will shrink by $10 billion over four years, according to projections outlined in the filing. Operating income will be stagnant at $3 billion, the document shows.
“There’s a lot of work that needs to be done, but also an extraordinary long-term opportunity if we get it right,” Dell said.