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Blackstone Drops Dell Bid, Cites Declining PC Market
An anonymous reader writes "The Blackstone Group has notified Dell's board that it has ended its bid for the company after performing 'due diligence' on Dell's books. The private equity firm gave two reasons for its withdrawal in a letter to the special committee of the board reviewing privatization offers: the 'unprecedented 14 percent market decline in PC volume in the first quarter of 2013' and 'the rapidly eroding financial profile of Dell.' IBM's recently announced intention of withdrawing from the x86 server market may have also spooked investors. Blackstone was one of two outside bidders that emerged after founder Michael Dell and Silver Lake Partners announced a deal to take the company private for $24.4 billion. The remaining bidders did not comment on Blackstone's withdrawal; however, the Bloomberg piece notes that Dell's original deal with Silver Lake Partners contains language preventing the latter from backing out."
They once had an appealing brand, which gave them an advantage over all the other people who were selling an indistinguishable product.
The reason Dell became big was because of really good just-in-time manufacturing control.
The biggest selling point for computers back when Dell became big was the CPU and its clock speed. It was also the fastest-depreciating component of the computer. In order to get good prices you needed to buy them in bulk, but if you stockpiled them and then took six months to sell them you'd be wiped out by the depreciation (you pay $1000 for a CPU that is worth $300 in six months).
Dell did build-to-order, mail-order, and just-in-time extremely well.
Build-to-order means that you don't end up with 47 models where you end up with 10 that don't sell well and have to be sold at firesale prices. It means that each customer gets exactly the computer they want, at the lowest price possible for that computer (well, assuming they want to buy a copy of Windows and MS Works). Their very-friendly website meant that people didn't have to walk down rows of PCs at the local retailer and try to compare the 47 different models their competitors were selling.
Mail-order means that they had little warehousing/distribution, which means less PCs stuck depreciating in the pipeline between consumers and the manufacturing plant. If they didn't sell as many model 3 video cards they just didn't order that many - they didn't have 30,000 PCs with those cards sitting in stores all over the country depreciating.
Just-in-time means that the part comes in from Intel/etc the day before it gets mailed out as part of a PC, or close to it. Again, inventory is rapidly depreciating, so you don't want to sit on anything. They were able to react to changes in the market - they didn't have a stake in one model or another selling better - they could just go where the customers were. If they offered a particular model and nobody bought it they didn't lose much, because they didn't build it until somebody ordered it.
Things like this are what made Dell big. Everybody else figured out what they were doing, and the MHz war wound down making the CPU less critical and slowing down depreciation.
Note - I'm not particularly close to the PC hardware market, so if there were other factors I'm all ears.