Peter ffoulkes, Research Director for Servers and Cloud Computing
Manor Farm of Dingley Dell is the convivial house where members of the Pickwick Society spent happy hours playing cards and eating fine food in front of a blazing fire in the old dining room in Charles Dickens’ first novel, ‘The Posthumous Papers of the Pickwick Club.’ For Michael Dell, Dingley Dell is analogous to a successful outcome of his leveraged buyout (LBO) proposal with Silver Lake Partners and supported by Microsoft. The $24.4bn buyout offers shareholders $13.65 apiece, which was initially pitched slightly above the then-market price, but has since fallen below the speculation-driven share price until the last few days. On April 22, Dell closed at $13.24, down over 1% on the day and somewhat below the offer price.
Following a week when IBM gained a new interpretation for its acronym – ‘I Blooming-well Missed’ – for the first time in eight years and dragged the market down on poor x86 server sales among several other things, the Dell LBO is looking increasingly attractive to some, while raising speculation about the timing and nature of the eventual outcome from others as Blackstone Group withdrew its bid. The Blackstone bid was always a little puzzling, especially in the light of speculation that Mark Hurd might be asked to take on the role of CEO and do for Dell what he has already done for HP and Oracle’s hardware business. The prospect of a hostile takeover bid from Carl Icahn is still on the table. Icahn’s track record as a corporate raider does not necessarily bode well for Dell’s customers, and one could easily imagine him channeling Shakespeare’s Mark Antony with the sentiment, “I come to bury Dell, not to save it.”
“When you come to a fork in the road, take it.”
IBM’s miss on the quarter turns up the heat under all the top tier server vendors and may serve as a harbinger of change in the established leadership as the market transitions to a new cloudy future. IBM’s Systems and Technology revenue of $3.1bn was down 17% year-over-year, 13% at constant currency. System z grew 8% at constant currency, while System x was down 8%. The company hinted at substantial future actions, which fuels speculation that the company may spin off all or part of its x86 server business to Lenovo. IBM emphasized the growing traction for its PureSystems integrated-infrastructure offerings, claiming to have sold over 4,000 systems in over 90 countries in 12 months. Given this emphasis, if the Lenovo deal has substance, it seems more likely to be focused on the low-end System x servers rather than the more sophisticated iDataPlex, PureSystems or BladeCenter product families.
With over 80% of modern datacenter capacity being delivered on x86 architectures, we might be about to see the biggest shake-up in the server vendor lineup in decades. Oracle has chosen not to compete in the general-purpose x86 server market, and IBM’s strategy is yet to be determined. HP’s server customers are still very positive about the company’s hardware products, but remain very concerned about overall company strategy, software and services. While we are seeing some encouraging trends under CEO Meg Whitman’s leadership, this does not yet seem to be reaching customers with sufficient clarity to provide adequate reassurance. Even Dell’s continuing existence as a viable entity seems to be open to question. In the meantime, Cisco has not only captured the mindset of ‘virtualization-era’ datacenter customers, it now appears to be perceived as one of the safest ports within reach as the storm clouds gather.
That much said, Dell is increasingly well regarded by TheInfoPro respondent community for enterprise server products and spending plans. Even if the current expectation that the PC era is indeed over comes to pass, the cloud is still going to be largely powered by x86 hardware and Windows Server-based applications for a long time to come. Dell certainly has a short-term problem to navigate in terms of investor confidence, but the long-term corporate transformation being engineered by Michael Dell and his executive team is widely regarded as going in the right direction to position the company as a viable end-to-end datacenter and cloud infrastructure provider. There are clearly execution challenges and speed bumps on the road, and the investment community is not exactly known for its patience, which may be the largest and most immediate issue facing the buyout initiative.
Current server market conditions appear to support Michael Dell’s insight and strategy for the company. While the outcome of the LBO is far from certain, a successful conclusion will give him the opportunity to avoid being cast in a Dickensian role as ‘The Ghost of Business Past.’
Anecdotal commentary by TheInfoPro respondent community illustrates both support for Dell and some of the challenges that need to be overcome:
- “I like what Microsoft is doing with Dell. Their cloud configuration is very cool.” – LE, Financial Services
- “Dell’s servers are getting tighter and more feature rich.” – MSE, Education
- “Dell makes a good product, and they deliver better than anyone. You order it, you get it. The downside, they need to come in and find out what we are doing. They just wait for us to call.” – LE, Consumer Goods/Retail
- “Voomi was just bought by Dell, seems like it will do great innovation in PaaS.” – LE, Financial Services
- “I like Dell’s new VM stack. HP has a box utilizing OpenStack that looks pretty cool.” – LE, Industrial/Manufacturing
- “Actively investigating anyone with functionality to support our DR strategy by live migration. VMware, Dell Quest, others.” – LE, Industrial/Manufacturing
- “I think they have the right idea about moving into the enterprise space. I like their recent acquisitions as well. I would like to see a better method to do business. They need to streamline, better attention to detail and stop including options that we do not want or need.” – LE, Industrial/Manufacturing
- “Dell for us, they are a solid company, and we have been with them for about a decade. We have validated to ourselves we are sticking with Dell. They are cost competitive and it is very easy to do business with them. We have never had a compelling reason to switch. The only real downside is their technical innovation. Of course, I don’t want them to become overly innovative. The last thing I want is vendor lock-in.” – LE, Materials/Chemicals