Woori BMO Group Reports On Dell As They Go Private In $24 Billion Deal by Woori BMO Group

Woori BMO Group Reports On Dell As They Go Private In $24 Billion Deal

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Toronto, Canada 5 th February, 2013

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Mr. Shinsato Masao Chief Economist

Woori BMO Group Reports On Dell As They Go Private In $24 Billion Deal 5 TH FEBRUARY, 2013 /WOORI BMO GROUP/ Dell has engaged in a $24.4 billion deal to take itself private, according to analysts at the wealth management company Woori BMO Group. This will be a daring step out of the harsh glare of Wall Street, as it aims to reinvent itself in a world where personal computers are no longer the major technology sector.

The buyout which was revealed on Tuesday and which will be by far the largest since the days of the recession is a major gamble. This will load Dell with $15 billion in additional debt and will do little to stop the forces that reshape the technological market and undermine the firm’s business.

Fifteen years ago Dell made huge profits from the direct selling of customised PCs to consumers. Six years ago it was the leading personal computer manufacturer worldwide. It is in 3rd place today, behind Hewlett-Packard and Lenovo, and slipping.

Dell’s share of an increasingly shrinking PC market fell from 16.6 percent six years ago to just 10.7 percent last year.

No-name Taiwan and China competitors are scraping earnings to razor-thin margins. Android smartphones and iPads are the bestselling and most money-making products, no longer Windows PCs and desktops.

So while a move to cloud storage has boosted competition for data centres — a chance for Dell to sell hardware — huge customers like Google and Facebook are cheaply installing their own equipment. The growth in cloud computing has also caused many companies to forgo purchasing new computers, focusing instead on leased time and software running on virtual computer networks.

Dell’s market share for servers has fallen to 22.2 percent of the 9.5 million servers shipped in 2011 by about one percentage point. In this section, the bigger problem is the burden on profit margins. Shaw Wu, an analyst with Sterne Agee, reports that operating margins on servers, previously below 15 percent, are currently “in high single digits relative to mid-single digits for PCs.” Servers are expected to see PC-like margins soon, he added.

Michael S. Dell is investing his share in the company and about $700 million of his fortune to be able to face such obstacles and turn around a firm he founded in his dormitory room at the University of Texas in 1984.

“Dell’s transition is well underway, but we know it will take more time, more effort and more flexibility,” Mr. Dell wrote Tuesday in a memo to staff. “I think we’re best aligned with investors that can have long-term funding to help Dell develop and drive the turnaround plan for the organization.”

Mr. Dell’s commitment ensures that if the owners support the offer, he will retain ownership of the firm. One of the most influential players in development firms, the private equity company Silver Lake, is investing over $1 billion in cash.

“After taking on an estimated $15 billion in debt, Mr. Dell and Silver Lake claim that the corporation will survive due to the cash already generated by its PC business,” reported Christian Harper, Woori BMO Group’s Director of EMEA Wealth Management.