Will the Dell Buyout Affect Government?

As Dell's founder and its investors leverage a buyout, some government agencies are left wondering what will become of their own investments in the company's products.

by / February 14, 2013

On Feb. 5, PC maker Dell announced a $24.4 billion buyout that will move the company off the NASDAQ and Hong Kong Stock Exchange and into the hands of Michael Dell and technology investment firm Silver Lake. The purchase, which involved a $2 billion loan from Microsoft, is the largest technology buyout ever. As the company spends the next month or so going private and restructuring, some government agencies are asking what will happen to both their equipment and their relationship with the technology vendor.

Though no one can now be sure of the exact details, Dell's role in the industry is sure to change. In addition to much anger from current investors, competitor Hewlett-Packard released a statement indicating they would take “full advantage” of Dell's uncertain future. "With a significant debt load, Dell's ability to invest in new products and services will be extremely limited," the statement read. "Leveraged buyouts tend to leave existing customers and innovation at the curb."

But not everyone agrees with that mentality.

While IT managers tend to be a conservative lot and wary of such changes, said Carter Lusher, chief analyst for Ovum, this could actually be an opportunity for governments to take advantage of Dell's position and get some good deals. “What we anticipate," he said, "is that Dell is going to do some radical restructuring of the organization."

Dell, which was spreading itself too thin, Lusher added, will likely abandon the low-end consumer market in order to focus more on IT infrastructure and midsized organizations and governments.

And a more focused approach by Dell could mean better service and products in the markets they chose to be a part of. And now, he said, would be a good time for governments to approach Dell to try to get discounts or free extras like extended warranties or service credits.

“When governments buy IT infrastructure, they're making an investment for years and years and years, so they need the vendor to stay around to provide upgrade, support, warranty and additional products,” Lusher said. For this reason, he noted, some IT managers are worried about this change, but there is no reason to worry because Dell isn't going away.

Some IT managers have even said they are optimistic about the change. The South Carolina Attorney General's office became a Dell customer in 2011 when Dell bought out the agency's existing storage solution vendor, Compellent. Though the agency is listed on Dell's website as a success story for its use of Dell Compellent products, any success the agency had didn't have anything to do with Dell, IT Director Sandee Sprang said. “I bought all my Compellent stuff from Compellent when they were private,” she said, adding that the quality of service provided by Dell has gotten worse over the past few years.

“I think I may be happy that they're [restructuring], because I've been so disappointed in the quality of the support that they've been able to provide," Sprang said. "I'm not sure if going back private is going to fix that, but they seem to do a better job when they were focused on one industry, instead of trying to manage as many as what they have now."

Sprang said she thinks Dell has a difficult time communicating internally because anytime she calls, she is routinely routed to five or six different departments before the right combination of people to help with the situation is figured out.

Investors expressed mixed reactions to the buyout, but Michael Dell wrote in a press release that this change would “open an exciting new chapter for Dell.”

And Lusher added that unless a government agency is buying a lot of low-end PCs from Dell, "they probably won't see much of a difference at all.” 

Colin Wood former staff writer

Colin wrote for Government Technology from 2010 through most of 2016.

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