Michael Dell said that since going private, “I think about 20 percent of my time has been freed up.” He said, “You think about all of the time spent dealing with governance and preparing for investor activities and dealing with various shareholder requests… This can be quite distracting, right, if you try to grow a business.”

Michael Dell: 10+ Companies Have Asked For Advice On Going Private

On whether more public companies should go private, Dell said, “I’ve had quite a few of them contact me and ask me about how we went through the process and what it was like and that sort of thing.  It certainly wasn’t an easy thing to go through the process, once we got through it, it’s been a lot easier managing the business as a private entity.” On the companies who have contacted him for advice on going private, Dell said, “Some in Dell’s size range, some a little larger, quite — a lot more smaller than Dell. But I’d say more than 10.”

Michael Dell: Growth Rate Accelerating as Private Company

ERIK SCHATZKER, BLOOMBERG TV HOST:  Well, let’s begin with the obvious.  I gather you love being private.

Why?

MICHAEL DELL, FOUNDER AND CEO, DELL:  You know, we’re enjoying the freedom and flexibility we have as a private company.  We are not bound by 90-day periods.  We’re focusing on our future out several years from now.

And we have an enormous opportunity and we’ve had a great year.  We’re growing our — all of our businesses, all of our businesses are performing quite well relative to the industry.  And it’s just a lot easier to focus 100 percent on our customers.

And —

SCHATZKER:  Not have to worry about the investors?

MICHAEL DELL:  There you go.

SCHATZKER:  Is it that different, being private versus being public? You’ve had it for a year now.

MICHAEL DELL:  I think about 20 percent of my time has been freed up.

SCHATZKER:  Really?

MICHAEL DELL:  yes.

SCHATZKER:  Twenty percent of a CEO’s time?

That’s pretty remarkable.

MICHAEL DELL:  Well, you think about all of the time spent dealing with governance and preparing for investor activities and dealing with various shareholder requests.  If I watch your show, I see the constant discussion of should there be a bigger dividend, should there be a share repurchase, should they spin off this, should they split off that, should they merge with this?

This is really — can be quite distracting, right, if you try to grow a business, right, so…

SCHATZKER:  Well, that leads us to a pretty obvious question, which is you partnered with Silver Lake.  There are lots of other private equity firms that have tons of capital and great access to financing who could partner with other public companies.  Should more public companies go private?

MICHAEL DELL:  Well, that’s for them to decide.  I’ve had quite a few of them contact me and ask me about how we went through the process and what it was like and that sort of thing.  It certainly wasn’t an easy thing to go through the process, once we got through it, it’s been a lot easier managing the business as a private entity.

We can take on risk.  We can accept risks and invest more aggressively.  And it’s — I think you could see some more, based on the discussions that I’ve been having with some other colleagues.

SCHATZKER:  You have intrigued me. How many companies are — I’m curious if you could put a little detail on it. How many companies have you talked to about doing the kind of transaction that you did? And are we talking about companies of the size of Dell, $27 billion or even larger?

MICHAEL DELL:  Some in Dell’s size range, some a little larger, quite — a lot more smaller than Dell.

But I’d say more than 10.  But obviously I can’t tell you who they are.

SCHATZKER:  Do you blame activism? Let’s put it this way.  You tangled with Carl Icahn and Southeastern in the course of taking Dell private and that has given you a taste of activism.  Do you blame activism for what’s happening to some of your competitors, HP, for example, splitting into IBM under tremendous pressure from investors for not being able to grow revenue and perhaps doing the wrong things with its capital?

MICHAEL DELL:  I think there are two lenses that one should apply to these various moves that are being made.  And the first is to say is this something that’s actually good for the customers of the enterprise?  And often cases, the answer is no.

And then the second lens question would be if you owned all of the business, would you actually do this?

And of course there’s activism is a bull market strategy. And there’s a risk that the temporary nature of that shareholder who’s renting those shares for a period of time, it certainly benefits during that short period of time.

But what happens later on?  And that’s a risk and certainly as a long-term owner-operator of business, I’m thinking about this over a lifetime and beyond.

SCHATZKER:  So what do you say to the growing number of public company directors who are popping up and occasionally even members of management that were — there are far fewer of those — who say activism is a healthy influence on corporate America.  It’s bringing discipline to management. Is that totally disingenuous?

MICHAEL DELL:  Well, I’m not saying it’s all bad and I’m sure there are good ones and I’m sure there have been plenty of good things that have happened as a result of it.

But anything taken to an extreme can be a bad thing, right.  And I think there are some bad examples in addition to probably some good ones.

SCHATZKER:  John Phelan, who manages your money, whom I met last year, told me at the time that you could have financed your LBO on your own without Silver Lake. Should you have in retrospect?

MICHAEL DELL:  Well, the nature of the process really lent itself to ensuring that there was another party involved beyond me and the independent board of directors went through this very rigorous process.  There were actually multiple go shops, as you recall; you guys reported on quite extensively and I think it was about the most rigorous process ever conducted.

And it was, in revenue terms, the largest company ever to go private.

SCHATZKER:  Let’s talk about the business.  How quickly is your industry growing, the markets you serve and how’s Dell doing against that?

MICHAEL DELL:  We’ve been able to accelerate our growth rate.  And we’ve been investing.  We’ve had seven quarters now in a row of share gain.  Here in the United States in the last quarter in our client business, we grew 19.7 percent.  The total industry grew only 4.7 percent.  But if you take Dell out of the total industry, the rest of the industry grew only 0.2 percent.  So 19.7 percent for Dell; 0.2 for the rest of the industry.

All of our businesses are growing and profitable.  We’re investing in R&D; we’re adding new customers.  And so today we are the fastest growing large integrated I.T. company in the world.  So we’ve materially increased our investments and our growth.

SCHATZKER:  When you say 19 percent for the client business, what exactly does that mean and how does that compare to overall top-line growth?

MICHAEL DELL:  That’s the IDC data that’s released by them publicly for unit sales; revenue would be a little different than that.  And on a — that’s not the total business.  That’s a part of our business. But we’ve been able to pretty much across the board grow the business faster than the industry.

SCHATZKER:  So these days, that would be low, mid, single digits?

MICHAEL DELL:  Not providing that kind of —

(CROSSTALK)

MICHAEL DELL:  — that’s one of the beauties of being private is I don’t have to answer that question. But look, I can tell you we’re generating healthy cash flows.  We’re paying down debt aggressively.  Business has got a very healthy rhythm to it and the year’s gone very well.

SCHATZKER:  How about costs?  Where are you on operating margins?

MICHAEL DELL:  Operating margins are pretty healthy.  We’re operating in a comfortable zone and we’re able to reinvest in the business.  But again, not…

SCHATZKER:  The reason I ask, of course, is that one of the things that you have an opportunity to do as a private company that’s perhaps easier than when you were a public company, given all the scrutiny that comes from investors and from the media and from government when it comes to effectively cutting jobs. You’re a growing company but are you becoming more efficient?

MICHAEL DELL:  We’re becoming more efficient, more productive; we are adding head count in research and development and in sales because this is a growth business and there certainly are plenty of areas where there’s expansion opportunity for us.  You think about the next billion customers that are being added into the digital age.  We have a pretty dramatic expansion of capabilities and cloud and cyber security.  We have a fast-growing security business.  Our software business, our data center business, we just introduced our 13th generation of our power edge (ph) servers.

The business is presently growing at a double-digit growth rate.  So we are absolutely gaining share.  I look at our key competitors in the negative growth rate.  So —

(CROSSTALK)

SCHATZKER:  Their numbers are public.

MICHAEL DELL:  Their numbers are public.  We can see that and it’s fun to be a little stealthier.  We can — but, look, the business is doing well.  Most importantly, our customers are happy.  We had a great event a few weeks ago, of Dell World.  We had 5,000 customers there.  Many of them showing off what they’re doing with our technology to drive innovations and success in their businesses and we’ve focused all of our energy and our business on how do we make our customers successful.  We do that — our customers win, company wins.

SCHATZKER:  Michael, the whole industry, I think it’s fair to say, was surprised by the demand for PCs over the past year.  Maybe you weren’t, but it seems everybody else was.

How much of that was due to the refresh cycle and how far along is that cycle right now?

MICHAEL DELL:  It was certainly a big factor.  And there are 1.8 billion PCs out there in the world, about 380 million of them sold in the past year.  But you’ve got over 650 million PCs that are four years old or older.  And this is a fairly predictable thing, right?  This isn’t new information.  This was — this is information that’s been known for years.

SCHATZKER:  Not a question of what, but when.

MICHAEL DELL:  Exactly.  And so what happens is at some point in time a new product comes along that is significantly better than the one you already have and you say I’ve got to have that.  It’s thinner, lighter, faster, does amazing things, has a touchscreen, high resolution, whatever it may be.  And you get that replacement and certainly it’s occurred this past year.

We’re going into a replacement cycle in servers with Windows Server 2003 and there are millions of servers that have to be replaced.  And we’re just at the beginning of that cycle, gearing up for that from a consulting and services standpoint, for a products standpoint.  And we’ve got the whole product line refreshed and ready to go to go help customers address that.

SCHATZKER:  Is that going to be more meaningful from a revenue and profitability standpoint than the PC refresh cycle has been?

MICHAEL DELL:  This is another one of these questions I don’t have to answer.

(LAUGHTER)

SCHATZKER:  True, but just characterizing this.  I’m not asking you for numbers.

MICHAEL DELL:  Yes, look, I think it’s certainly —

SCHATZKER:  The reason I ask is because it seems to be one of those things that perhaps not everybody has figured out.  If the PC, the speed of the PC refresh cycle took people by surprise, I wonder whether they’re going to be taken by surprise by the refresh cycle in servers.

And whether you think that that’s the case.

In other words is your view, do you see — do you believe your view is different from the prevailing view?

MICHAEL DELL:  I think our view certainly was different in the belief in the PC and by the way, we include tablets in PC.  We just think of that as a — it’s a notebook without a keyboard.  That’s a tablet.

So we see growth continuing and by the way, our perspective here is the market grows, we grow; the market shrinks, we grow.  So we’re growing share.  And so as I mentioned earlier, the 19.7 percent, we grew 310 basis points of share in the United States, big market for us for sure.  And been growing share seven quarters in a row.  We want to continue to do that in all of our businesses.

SCHATZKER:  So you have a great install base in servers and that should benefit you.

MICHAEL DELL:  Number one in North America, number one in APJ and we’ve refreshed the product line, tons of innovation and R&D applied to really lead in that space.  And also workloads are moving off of mainframe and Unix and older traditional environments onto more open software defined kind of environments that we’re extremely well positioned in the data center.

SCHATZKER:  What about the enterprise markets, where you don’t have that kind of install base, virtualization for example, and the public cloud, many of the companies active in those markets — Facebook, Amazon, Google, Yahoo! — the list goes on — aren’t buying brand name servers, right?  They’re effectively buying white boxes or companies use servers from companies like WeWin (ph) or Quanta and putting their own customized software on those boxes.

How do you compete with that trend which is very powerful?

MICHAEL DELL:  Well, the virtualization trend, that’s been going on for 15 years and we’re a big part of that.

There are about four companies — and you referred to them — that like to kind of roll their own, if you will.  All right, in terms of the data center.  We still sell relatively substantial amounts of product to those companies for a variety of reasons.

When you get beyond those companies, you don’t see as much of this.  And you also have to understand, there’s a really long tail on the provision deployment of computing power.  There’s 600 telcos out there in the world that are all building their own clouds.

And as a provider of infrastructure to all these companies, we tell them, first of all, we’re not your competitor.  Right?  So we’re not out there building a public cloud.  So we’re providing infrastructure to a very  high percentage of these companies, including many of the ones that you mentioned, helping them stand up their cloud capabilities.

And of course, you have 85 percent of the market is not — is not — those companies.  And so we’re selling roughly a third of the servers out there; we know where they’re all going and the ship to addresses would amaze you at how dispersed it is.  There’s still an enormous number of small sites and small data centers.

And while there’s growth in the cloud, you know, we’re actively fueling a lot of that.  So as all these software — as the service companies are building up, we’re often the power behind them in helping them build their new capabilities.  So new relic (ph), for example, hot new company, getting ready to go public here, great example of a Dell customer, many, many more as these companies stand up, Dropbox is a great Dell customer.  As they need more capacity, they’re buying that from Dell.

SCHATZKER:  What’s the outlook for margins in the industry, not just for your business, when on the one hand you have those non-name brand companies selling at very low ISPs — ASPs, excuse me, and at the same time you have name brand competitors, like Cisco, who are kind of commoditizing the business, or trying to?

MICHAEL DELL:  I think you have to have a very efficient supply chain.  You’ve got to be relentless on cost and it’s an operational excellence business for sure.  And you’ve got to keep moving up the food chain in terms of value add and software and services and —

SCHATZKER:  You feel prepared for it?

MICHAEL DELL:  Well, we’re doing well; we’ve had a great year.  We’re absolutely energized to go do that.  And we’ve bought 40 companies in the last 5-6 years.  So we added tremendous IP.  We’ve got the 15th largest software company in the world, grew over 20 percent last quarter.

So we’re off and running.

SCHATZKER:  Microsoft has been a good partner of yours and a good partner of HP’s over the years.

What if they move their Azure server business to non-branded boxes?

MICHAEL DELL:  Well, they’re a good customer of ours.  Look, I think what we see is the model that is conventional wisdom is that the public cloud grows and everything else shrinks.  I actually think it’s something a little different is happening.  There — what is the public cloud?  People don’t actually want the public cloud or the cloud, they want the benefits of the cloud.

OK?

What is it?  Well, it’s software that allows you to get better utilization over this shared pool of resources.  Now what’s actually happening is you’re starting to see a new breed of software in these private data centers that’s making them much more efficient.  And that efficiency over time is approaching the efficiency of the public cloud.

So if you go out there and you talk to a company, 500-person, 1,000-person, 20,000-person company, you say, hey, what do you like about the cloud?  Well, I like the efficiency.  I like the cost.  What do you not like about it?  Well, I’m worried about security.

I’m worried about my data being stolen and the risks associated with that.  So we’re seeing real growth in the private cloud.  And you’re seeing a lot of energy being applied by Microsoft and VMware, Red Hat, number of new companies that we’re partnered with —

SCHATZKER:  Private enterprises to do the kinds of things —

MICHAEL DELL:  Exactly.

SCHATZKER:  — the private — the public cloud offers.

These sound like some pretty powerful trends.  If you look into the future, what do you see as the most disruptive technologies, the things that are going to change our lives as consumers, the things that are going to change the course of history for companies?

MICHAEL DELL:  Look, we’ve got silicon costs are coming down dramatically.   And that is creating not a billion devices but a trillion devices.  And that’s enabling all kinds of new business model disruption beyond technology disruption.  So you think about Uber and Airbnb, these aren’t really technology innovations as much as they are business model disruptions driven by the availability of technology and —

SCHATZKER:  At low cost.

MICHAEL DELL:  — and low cost.

That’s going to continue and only accelerate.  And then of course, as you have — go from a billion to a trillion devices, you have enormous amounts of data.  Well, that data has to be analyzed and interpreted and you have to do something with it.  And then you can enhance all kinds of businesses for better outcomes and not just businesses but health care, education, the environment, energy, et cetera.

So there’s just an enormous amount of opportunity in our sector.  And it’s becoming much more important.  You know, it  used to be it was just the big companies.  It was very expensive.  Now it’s every company.  You can’t do anything without technology.  Small businesses, they’re able to go global much more rapidly.  And so the pie’s expanding pretty significantly in our sector.

And what’s there’s — there are only about 10 companies on the planet that have more than 1 percent of this $3 trillion market.  And we happen to have about 2 percent of it.  So we’d like to have 3 percent or 4 percent.  We’ll keep working on it.

SCHATZKER:  One last thing:  five years from now, what does Dell look like?

MICHAEL DELL:  We’ve built a pretty substantial enterprise solutions business in the last five years.  We’d like to double it again.  So that would take it 40-plus billion or so.  And we’re absolutely building a capability to serve a broader set of customer needs.  So we started as a product company, moving much more into services and solutions and helping our customers solve the real business problems that they have.

SCHATZKER:  It’s been a pleasure talking to you.  Thank you so much.