Where Does Dell Go After Losing 3Par?

crimeandpunishment writes "It was the big deal Dell wanted in a big way. But now that it has lost out to Hewlett-Packard in the bidding war it started for 3Par, where does Dell go in its effort to diversify its business and move into the higher-profit area of selling technology to other companies? The company faces significant challenges, largely due to its lower-end focus, and because many of its competitors beat Dell into branching out. One analyst says, 'People see [Dell] as box-pushers'."

Re:What ever happened to do one thing and do it we

[Anonymous Coward]

No. Their shareholders demand that Dell produce an ever increasing value to the company - forever and ever. They have to get bigger or the stock value will decline and the CEO's options will not be worth enough.

Actually many stock options are crafted in such a way that any dividends paid will be treated as notionally received by the CEO and reinvested in stock, so this is not so much of a reason. A better reason is that public companies no longer believe in paying dividends. The rationale nowadays is that you own a stock in the hope that it will go up in price so you can make money by selling it to someone else... who will presumably be buying it in the hope that further down the line they can find someone else to offload it onto. It's the "Greater Fool" theory of investing - nobody buys a stock because they hope to get money from the ownership, they hope to make money by finding a "greater fool" than themselves to buy a fancy stock cert that is functionally just a piece of paper (or electronic equivalent).

There is nothing inherently wrong with a company retaining money for growth rather than distribution, it's just that it has become an idee fixe. CEOs don't want to start paying dividends because dividend-paying stocks are perceived as having limited growth potential. The reluctance to pay dividends leads to ridiculous results, like Apple and Google sitting on huge cash-piles larger than some Fortune 500 companies with no particular plans as to what to do with them. Still, the lack of need to ever raise new finance frees the Board from having to justify investment decisions to banks or investors.

Instead they do stock buy-backs to artificially increase the price of the stock - which only helps those investors who sell out, not those who continue to hold the stock. Or they go on "empire building" expeditions where they blow cash on wild merger & acquisition activity that is more about them becoming CEO of a larger empire than about building value for shareholders.

Look at the 3Par events. The final valuation is ludicrous at 325 EBITDA. Yes, what 3Par do is important to the future of IT. Yes, they will experience growth over the next few years. But this valuation already prices in an ultra-optimistic scenario. How can HP shareholders get a profit from this deal? In finance you take risks to earn rewards. I can certainly see a risk that 3Par will underperform, but how can it reward HP by overperforming? I just don't get it.

Re:The Problem with Dell

[LWATCDR]

HP actually made their own CPUs PA-RISC which they made up till 2008. They worked with Intel on the Itantium and seem to be the only people that can make money selling them.
IBM well IBM is IBM. They have have made more different CPUs than you can shake a stick at.
Dell takes parts and puts them in a box. Kind of like a mom and pop computer store.
Dell doesn't make crap and we have one of there server boxes in our rack. It works very well but we could have gone to newegg and put together something just as impressive.

But they do have one thing going for them

[turkeyfish]

They are very good at supporting their customers when things go wrong. I have purchased a number of Dell computers and have had excellent service with them over the years, particularly when I've had hardware failures. They attend to them courteously and promptly.

HP on the other hand does not support its products. I purchased a very expensive color laser printer from them just a few years ago, but when Windows 7 came out and I upgraded from XP, I discovered they refused to make a new driver for this printer. I and I learned thousands of other customers like me were left high and dry. I will never, ever buy HP equipment again. They simply don't support their products.

Given that most computers these days are essentially built from commodity components, service becomes a much more significant issue in terms of total cost of ownership. With Dell I have come out ahead when it comes to service, but with HP I had a lot of hidden costs when it comes to support for the inevitable repairs. HP may look sweet when they are new, but they become lemons a lot sooner than they should because of HP's determination to cut service and support costs at the expense of their customers.

Re:But they do have one thing going for them

[kullnd]

I agree with this 100% --- I currently purchase Dell for all workstations and servers in my environment, and have had nothing but regret when i have not... In an attempt to branch out there are two servers and a couple workstations from other vendors (IBM and HP), I have had to deal with tech support for both of those companies and both times I left with the impression that I'd rather put a bullet in my head than have to call them on any kind of regular basis. I have also found that attempting to find information / drivers for those systems are MUCH harder than it is with Dell where I just goto the support site, punch in a convenient service tag, hit go, and find everything that I need right there. Bad mouth dell all you want, but so far I would much rather call them when things do go wrong than any other hardware vendor I've delt with, and considering that most of the things that I've had go wrong are the same things that go wrong in other vendors (HDDs, RAM, etc.). I'll go ahead and keep using dell and save my budget at the same time.