Dell: A pile of dilemmas
Dell's problems run very deep, and getting Wall Street off management's back won't solve them. Founder Michael Dell's LBO won't break the company's dependence on the crumbling market for PCs, and it won't suddenly earn a return on the billions of dollars the company has poured into buying software companies. What's more, a buyout won't fill the black hole that is Dell's mobile strategy.
To be fair, Dell has made some positive changes. Just a few years ago, roughly three-quarters of Dell's revenue came from the sale of PCs. Now it's about 50 percent, a real improvement, but still far too high. Dell has spent billions of dollars acquiring a bevy of companies in software, storage, and networking. The results, though, have been far from stellar.
When the company reported its quarterly financial results last month, it revealed that earnings slid a horrific 72 percent year over year. Sales weren't terrible; clearly the company has been discounting like crazy in hopes or retaining market share in a rapidly shrinking market.
More positive for Dell, sales from the enterprise solutions, services, and software business climbed 9 percent to $5.8 billion, reflecting an increased focus on investing in providing services to corporations and government agencies. However, it's easier to show a solid percentage gain when you're starting from a relatively low number. It will take more than one good quarter in that segment to show that Michael Dell's strategy is beginning to work.
Wall Street shares some of the blame for Dell's problems, but that's hardly the major factor. As to keeping the analysts off its back, that's true. But don't think Michael Dell's new best friend -- Silver Lake Partners, to which he owes billions -- will be forever patient. He'll still be looking over his shoulder.
BlackBerry: Lurching off a cliff
What's the likelihood of BlackBerry saving itself by slimming down and going private? Darn small.
Chand (the Rutberg analyst) says the likely outcome is that BlackBerry will disappear in a few years. Its hardware business is "worth zero" (its new BlackBerry 10 flopped), while its service business is off by 21 percent and "is based on an archaic business model of sharing revenue with the carriers." Its patent portfolio has some value, as does its MDM (mobile device management) platform, but neither can sustain the company. Worse, as the number of BlackBerrys in use declines, so too does the value of that MDM platform, whose key advantage is its unique ability to manage BlackBerrys. Yes, the new version can now manage iOS and Android devices, but so can dozens of other MDM tools, which nearly all businesses already have in place for their large fleet of iOS devices and growing fleet of Android devices.
Chand says it's worth trying to become an enterprise services business that focuses on more than BlackBerry -- such as through its BlackBerry Messenger service, which it launched this week for iOS and Android, then suddenly pulled, and through its BES MDM server. Or it could spin off peripheral businesses and try to survive as a niche provider of highly secure smartphones. The chances of either succeeding are less than 50-50, he tells me.
Jeffrey Pfeffer, a professor of organizational behavior at Stanford's Graduate School of Business, says management and founders sometimes overestimate their ability to turn things around. "A lot of this is associated with hubris or pride," Pfeffer told NPR. "You think you know better. You think you're smarter than the world." That's rarely true.
This article, "Dance of the zombies: Why going private won't save Dell or BlackBerry," was originally published by InfoWorld.com. Read more of Bill Snyder's Tech's Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.