1 00:00:04,120 --> 00:00:07,160 Speaker 1: Get in touch with technology with tech Stuff from how 2 00:00:07,200 --> 00:00:13,680 Speaker 1: stuff Works dot com. Hey there, and welcome to tech Stuff. 3 00:00:13,720 --> 00:00:16,600 Speaker 1: I'm your host, Jonathan Strickland. I'm an executive producer at 4 00:00:16,600 --> 00:00:19,119 Speaker 1: how Stuff Works and I love all things tech, and 5 00:00:19,200 --> 00:00:23,640 Speaker 1: today we are continuing our story about Dell Computers. If 6 00:00:23,640 --> 00:00:26,360 Speaker 1: you haven't heard the most recent episode, go and listen 7 00:00:26,400 --> 00:00:28,720 Speaker 1: to that because that's part one. This is part two 8 00:00:28,840 --> 00:00:32,600 Speaker 1: and will be the conclusion for now for Dell because 9 00:00:32,640 --> 00:00:37,360 Speaker 1: the company spoiler alert is still around, so um yeah, 10 00:00:37,520 --> 00:00:39,199 Speaker 1: I'll probably have to do an update at some point 11 00:00:39,240 --> 00:00:41,720 Speaker 1: in the future. But in our last episode, I left 12 00:00:41,760 --> 00:00:46,280 Speaker 1: off in when Fortune magazine first ranked Dell computers on 13 00:00:46,360 --> 00:00:49,600 Speaker 1: the Fortune List. But a lot of stuff was going 14 00:00:49,640 --> 00:00:53,199 Speaker 1: on that year. In addition to that, Dell released a 15 00:00:53,320 --> 00:00:57,680 Speaker 1: laptop full color notebook computer, but the mobile computers Dell 16 00:00:57,720 --> 00:01:01,720 Speaker 1: produced were plagued with technical issues that vexed customers and 17 00:01:01,920 --> 00:01:07,480 Speaker 1: Dell representatives alike. By the company was essentially forced to 18 00:01:07,680 --> 00:01:11,800 Speaker 1: scrap the notebook line of products, entirely writing off the 19 00:01:11,840 --> 00:01:16,319 Speaker 1: division and taking a forty million dollar hit against earnings 20 00:01:16,360 --> 00:01:20,040 Speaker 1: to do so. Yikes. Engineers went back to the drawing 21 00:01:20,040 --> 00:01:22,560 Speaker 1: board to design mobile computers that did not have such 22 00:01:22,640 --> 00:01:29,160 Speaker 1: problematic technological issues. Also in ninete, Dell lost thirty eight 23 00:01:29,200 --> 00:01:32,840 Speaker 1: million dollars due to an issue with foreign currencies. Now 24 00:01:32,880 --> 00:01:35,520 Speaker 1: this gets a bit business ee, but it's important for 25 00:01:35,560 --> 00:01:39,880 Speaker 1: any corporation with global operations, and it's really not that 26 00:01:39,959 --> 00:01:42,480 Speaker 1: difficult to understand from a high level. So let's talk 27 00:01:42,520 --> 00:01:46,240 Speaker 1: about it first. Imagine you've got your home base of operations, 28 00:01:46,240 --> 00:01:49,080 Speaker 1: So for Dell, that's the United States, and the basic 29 00:01:49,160 --> 00:01:51,880 Speaker 1: unit of currency in the United States is the American dollar. 30 00:01:52,240 --> 00:01:55,080 Speaker 1: But Dell also does business in other places, such as 31 00:01:55,080 --> 00:01:58,160 Speaker 1: the United Kingdom, where the basic unit of currency is 32 00:01:58,200 --> 00:02:01,919 Speaker 1: the haypenny or the far thing or something. Just kidding, 33 00:02:01,920 --> 00:02:05,160 Speaker 1: of course, it's the pounds sterling. So an American company 34 00:02:05,320 --> 00:02:09,000 Speaker 1: receiving money from a British customer has to exchange the 35 00:02:09,040 --> 00:02:12,800 Speaker 1: customers pounds sterling to American dollars because it has to 36 00:02:12,880 --> 00:02:16,200 Speaker 1: cross borders. So the American company says, all right, well, 37 00:02:16,200 --> 00:02:18,760 Speaker 1: we'll take your pounds sterling, we'll go to an exchange 38 00:02:18,840 --> 00:02:22,440 Speaker 1: exchange it for American dollars, and that's the payment. Or 39 00:02:22,560 --> 00:02:25,160 Speaker 1: if an American company is paying a bill to a 40 00:02:25,200 --> 00:02:28,480 Speaker 1: British person or a company, it has to exchange American 41 00:02:28,520 --> 00:02:31,919 Speaker 1: dollars for pounds sterling. This is true for any two 42 00:02:32,000 --> 00:02:34,920 Speaker 1: foreign currencies. Of course, I'm just using dollars and pounds 43 00:02:34,919 --> 00:02:37,080 Speaker 1: for the sake of an example, but you know, it 44 00:02:37,080 --> 00:02:40,639 Speaker 1: could be euro and end, it can be whatever. Ultimately, 45 00:02:41,120 --> 00:02:44,880 Speaker 1: business dealings between the US headquarters and British holdings have 46 00:02:45,000 --> 00:02:48,520 Speaker 1: to depend upon a currency exchange, and the American dollar 47 00:02:48,639 --> 00:02:51,520 Speaker 1: and the pound sterling do not hold the same value. 48 00:02:52,320 --> 00:02:56,040 Speaker 1: What's more, the value of each can change with respect 49 00:02:56,120 --> 00:02:59,000 Speaker 1: to the other. So let's just start off with the 50 00:02:59,040 --> 00:03:01,560 Speaker 1: current exchange rate as of the recording of this podcast. 51 00:03:01,600 --> 00:03:05,079 Speaker 1: For this example, one pound sterling is equal to one 52 00:03:05,200 --> 00:03:10,840 Speaker 1: point three three American dollars. But that value can change, 53 00:03:10,919 --> 00:03:12,800 Speaker 1: and it's possible that it can change in such a 54 00:03:12,800 --> 00:03:14,960 Speaker 1: way that a company could get the worst end of 55 00:03:14,960 --> 00:03:18,040 Speaker 1: a deal because of an exchange. So let's say an 56 00:03:18,080 --> 00:03:21,959 Speaker 1: American company accepts a payment, which would be a receivable 57 00:03:22,160 --> 00:03:25,799 Speaker 1: in business terms, and there's a British customer. The British 58 00:03:25,840 --> 00:03:28,720 Speaker 1: customer pays for a brand new computer, and the exchange 59 00:03:28,800 --> 00:03:31,080 Speaker 1: rate at the point where the British customer buys the 60 00:03:31,080 --> 00:03:34,400 Speaker 1: computer is at one point three three dollars to the 61 00:03:34,400 --> 00:03:37,880 Speaker 1: pounds sterling, and the British customer is paying in pounds 62 00:03:37,920 --> 00:03:42,320 Speaker 1: because that's what they have. It gets converted to American dollars. 63 00:03:42,360 --> 00:03:45,640 Speaker 1: But then, let's say the britsh customer gets his or 64 00:03:45,680 --> 00:03:48,080 Speaker 1: her computer, they run it for a little bit and 65 00:03:48,120 --> 00:03:50,720 Speaker 1: they say, this isn't what I wanted. I'm gonna want 66 00:03:50,720 --> 00:03:54,320 Speaker 1: a refund, So they return the product in order to 67 00:03:54,320 --> 00:03:57,560 Speaker 1: get a refund. Only now the exchange rate has changed. 68 00:03:57,920 --> 00:04:00,760 Speaker 1: Now the exchange rate is one point four or American 69 00:04:00,800 --> 00:04:04,240 Speaker 1: dollars per pounds sterling. Now the British customer bought his 70 00:04:04,400 --> 00:04:08,120 Speaker 1: or her computer in pounds, they expect the same number 71 00:04:08,160 --> 00:04:10,960 Speaker 1: of pounds in return. Let's say that they spent seven 72 00:04:11,040 --> 00:04:15,280 Speaker 1: hundred pounds on this computer. They expect a refund of 73 00:04:15,280 --> 00:04:19,120 Speaker 1: seven hundred pounds. But now seven hundred pounds costs more 74 00:04:19,240 --> 00:04:22,400 Speaker 1: American dollars than it used to because the pound is 75 00:04:22,440 --> 00:04:25,760 Speaker 1: stronger against the dollar than it had been during the 76 00:04:25,800 --> 00:04:29,760 Speaker 1: initial exchange. That means, ultimately the American company has to 77 00:04:29,760 --> 00:04:32,640 Speaker 1: pay more in the refund than it got in the 78 00:04:32,680 --> 00:04:37,440 Speaker 1: initial purchase. The company loses money on the refund. To 79 00:04:37,560 --> 00:04:40,920 Speaker 1: protect against that sort of thing, companies sometimes use a 80 00:04:40,960 --> 00:04:44,839 Speaker 1: strategy called hedging. So, for example, a company might make 81 00:04:44,880 --> 00:04:48,720 Speaker 1: an agreement that locks in an exchange rate for a transaction, 82 00:04:49,240 --> 00:04:53,000 Speaker 1: and that exchange rate determines how much value must be exchanged. 83 00:04:53,279 --> 00:04:55,919 Speaker 1: So let's say that they lock in this one point 84 00:04:56,000 --> 00:05:00,800 Speaker 1: three three American dollars to pounds sterling. Then, whenever the 85 00:05:00,839 --> 00:05:03,800 Speaker 1: deal happens, because there was this agreement to lock in 86 00:05:03,800 --> 00:05:06,719 Speaker 1: the exchange rate, that's the rate that is used to 87 00:05:06,720 --> 00:05:09,600 Speaker 1: convert American dollars to pound sterling, no matter what the 88 00:05:09,680 --> 00:05:13,440 Speaker 1: current exchange rate actually is. So the amount of money 89 00:05:13,480 --> 00:05:16,599 Speaker 1: that changes hands could be slightly different than what it 90 00:05:16,680 --> 00:05:20,159 Speaker 1: should be based on the exchange rate. Or the company 91 00:05:20,240 --> 00:05:23,120 Speaker 1: might use options in which the company gets to set 92 00:05:23,160 --> 00:05:26,200 Speaker 1: an exchange rate that it can opt to use, but 93 00:05:26,240 --> 00:05:29,760 Speaker 1: if the actual exchange rate is more favorable, then the 94 00:05:29,800 --> 00:05:33,000 Speaker 1: company can switch over to that one instead. So again, 95 00:05:33,080 --> 00:05:37,000 Speaker 1: let's say that the American company says, all right, we 96 00:05:37,040 --> 00:05:40,200 Speaker 1: agree with an option to go with one point three 97 00:05:40,279 --> 00:05:43,240 Speaker 1: three American dollars to pound sterling. When the deal is 98 00:05:43,279 --> 00:05:46,080 Speaker 1: ready to happen, some for some reason, the British pound 99 00:05:46,320 --> 00:05:48,760 Speaker 1: has gone weak against the dollar, and now it's more 100 00:05:48,800 --> 00:05:52,279 Speaker 1: like one point to five American dollars to British pounds 101 00:05:52,279 --> 00:05:56,040 Speaker 1: sterling because of the option approach. The American company says, Nope, 102 00:05:56,080 --> 00:05:58,120 Speaker 1: we're going to exercise our option and we're going to 103 00:05:58,160 --> 00:06:01,000 Speaker 1: exchange at the current rate because will save more money 104 00:06:01,040 --> 00:06:04,960 Speaker 1: that way. I'm not entirely certain what specific hedging strategy 105 00:06:04,960 --> 00:06:07,360 Speaker 1: Dell Computers was using in the early nineties. Most of 106 00:06:07,400 --> 00:06:09,560 Speaker 1: the articles I could find merely said that the foreign 107 00:06:09,600 --> 00:06:13,320 Speaker 1: currency exchange hedging strategy was a total fiasco and it 108 00:06:13,400 --> 00:06:17,160 Speaker 1: cost the company nearly forty million dollars as a result. 109 00:06:17,800 --> 00:06:20,960 Speaker 1: To top it all off, Dell began to face competition 110 00:06:21,000 --> 00:06:24,320 Speaker 1: in the form of Compact. Now, previously, Compact had been 111 00:06:24,360 --> 00:06:28,359 Speaker 1: known for selling much more expensive computers, but Compact released 112 00:06:28,360 --> 00:06:31,960 Speaker 1: a PC price at eight dollars. They were really taking 113 00:06:32,000 --> 00:06:35,880 Speaker 1: aim at Dell's position in the marketplace. Dell responded by 114 00:06:35,920 --> 00:06:39,320 Speaker 1: making some big price cuts in their own products, which 115 00:06:39,440 --> 00:06:42,520 Speaker 1: the company could afford to do because their operating costs 116 00:06:42,520 --> 00:06:46,480 Speaker 1: were much lower than compacts operating costs, so they had 117 00:06:46,520 --> 00:06:49,440 Speaker 1: a little more wiggle room to work with prices, and 118 00:06:49,480 --> 00:06:52,960 Speaker 1: the profit margins on Dell machines decreased, but the company 119 00:06:53,000 --> 00:06:55,080 Speaker 1: was able to maintain its position in the market. It 120 00:06:55,120 --> 00:06:59,560 Speaker 1: wasn't forced out by Compact. This combination of factors led 121 00:06:59,600 --> 00:07:02,800 Speaker 1: the company to post its first quarterly loss in its 122 00:07:02,880 --> 00:07:08,320 Speaker 1: history in nineteen. That quarterly loss was for seventy five 123 00:07:08,520 --> 00:07:12,560 Speaker 1: million dollars, but the company was able to recover slightly 124 00:07:12,600 --> 00:07:14,760 Speaker 1: within that fiscal year. At the end of the fiscal 125 00:07:14,840 --> 00:07:17,480 Speaker 1: year they did. They still posted a loss, but their 126 00:07:17,560 --> 00:07:20,960 Speaker 1: loss was thirty six million, which is terrible, but better 127 00:07:21,000 --> 00:07:23,960 Speaker 1: than seventy five million that was for the fiscal year 128 00:07:24,080 --> 00:07:29,080 Speaker 1: ending on January nineteen. Now, several things changed at that time. 129 00:07:29,480 --> 00:07:32,120 Speaker 1: One was that Dell Computers, upon the advice of a 130 00:07:32,160 --> 00:07:36,240 Speaker 1: consultant named Kevin Rawlins, would pull its products out of 131 00:07:36,440 --> 00:07:40,480 Speaker 1: retail establishments. So they said goodbye to comp us A 132 00:07:40,640 --> 00:07:43,920 Speaker 1: and Walmart and Sam's Club, and they decided to no 133 00:07:44,000 --> 00:07:48,080 Speaker 1: longer use resellers at all. The company had been undercutting 134 00:07:48,080 --> 00:07:50,760 Speaker 1: its own revenue and also had to maintain much larger 135 00:07:50,800 --> 00:07:54,240 Speaker 1: inventories for those retailers than when it was just doing 136 00:07:54,240 --> 00:07:57,360 Speaker 1: the direct sales to customers. So Rollins would end up 137 00:07:57,360 --> 00:08:00,720 Speaker 1: coming over to join Dell Computers as a full time employee. 138 00:08:00,760 --> 00:08:03,320 Speaker 1: He'll come back into the story in just a moment. 139 00:08:03,680 --> 00:08:07,360 Speaker 1: Another change was that Dell Computers stopped focusing on the 140 00:08:07,360 --> 00:08:12,120 Speaker 1: consumer market as its primary customers. The laptop problems, the 141 00:08:12,200 --> 00:08:15,440 Speaker 1: increased competition from Compact, and the recession had all been 142 00:08:15,520 --> 00:08:20,240 Speaker 1: factors in that consideration. Also, Dell's corporate clients were becoming 143 00:08:20,280 --> 00:08:25,240 Speaker 1: increasingly important and representing a much larger source of regular revenue, 144 00:08:25,600 --> 00:08:28,480 Speaker 1: so for the next couple of years, Dell would switch 145 00:08:28,520 --> 00:08:32,440 Speaker 1: its focus almost entirely towards selling computers to companies and 146 00:08:32,480 --> 00:08:37,840 Speaker 1: to large organizations, not to your average consumer. In nineteen 147 00:08:39,000 --> 00:08:43,160 Speaker 1: mort Topford joined the company as vice chairman. Mort Topf 148 00:08:43,320 --> 00:08:46,120 Speaker 1: had formerly worked as an executive at Motorola, and his 149 00:08:46,160 --> 00:08:48,880 Speaker 1: original plan was just to act as an advisor for 150 00:08:49,000 --> 00:08:51,880 Speaker 1: Michael Dell for just a few months, and he had 151 00:08:51,920 --> 00:08:54,920 Speaker 1: even built a retirement home for his wife and himself 152 00:08:55,000 --> 00:08:58,560 Speaker 1: to share in Nevada, but he ended up staying around 153 00:08:58,559 --> 00:09:01,720 Speaker 1: with the company for five years. He acted as another 154 00:09:01,800 --> 00:09:04,920 Speaker 1: mentor to Michael Dell. He helped guide the company through 155 00:09:04,920 --> 00:09:07,800 Speaker 1: restructuring and through growth, and he also took on more 156 00:09:07,800 --> 00:09:10,240 Speaker 1: of the operations of the company so that Michael Dell 157 00:09:10,280 --> 00:09:13,560 Speaker 1: could focus primarily on long term strategies and the big picture. 158 00:09:13,960 --> 00:09:18,800 Speaker 1: The company righted itself that year by n Dell reported 159 00:09:18,800 --> 00:09:22,839 Speaker 1: profits of one hundred forty nine million dollars. It also 160 00:09:22,960 --> 00:09:26,720 Speaker 1: grew by fifty percent, and Dell had entered the online 161 00:09:26,720 --> 00:09:30,480 Speaker 1: world and joined the information super highway. The company launched 162 00:09:30,520 --> 00:09:34,640 Speaker 1: a website now in nine. It was largely an informative website. 163 00:09:34,640 --> 00:09:37,920 Speaker 1: It was not an e commerce site, so essentially, we'll 164 00:09:37,960 --> 00:09:39,760 Speaker 1: tell you, hey, call this phone number if you want 165 00:09:39,760 --> 00:09:43,000 Speaker 1: to buy a computer. Dell would actually launch an online 166 00:09:43,040 --> 00:09:47,880 Speaker 1: store the following year in nine. Six months after launch, 167 00:09:48,840 --> 00:09:52,880 Speaker 1: that website was generating one million dollars in sales per 168 00:09:53,080 --> 00:09:56,920 Speaker 1: day through the website. Three years later, the company was 169 00:09:56,960 --> 00:10:01,040 Speaker 1: making more than thirty million dollars in sales per day 170 00:10:01,080 --> 00:10:04,880 Speaker 1: online selling directly to consumers over the internet. It was 171 00:10:04,920 --> 00:10:07,160 Speaker 1: the Internet that allowed Dell to get back on that 172 00:10:07,200 --> 00:10:10,840 Speaker 1: model of marketing directly to home consumers as well as 173 00:10:10,880 --> 00:10:14,360 Speaker 1: to corporations. While Dell continued to serve big corporate clients, 174 00:10:14,640 --> 00:10:18,319 Speaker 1: it once again could court those average consumers, all thanks 175 00:10:18,320 --> 00:10:20,920 Speaker 1: to the Internet. Now, I have a lot more to 176 00:10:20,960 --> 00:10:24,240 Speaker 1: say about what Dell Computers was doing, but before I 177 00:10:24,280 --> 00:10:26,880 Speaker 1: go into that, let's take a quick break to thank 178 00:10:26,920 --> 00:10:37,839 Speaker 1: our sponsor. In nine, the company continued to do huge 179 00:10:37,880 --> 00:10:41,320 Speaker 1: business both in its corporate accounts and with direct sales 180 00:10:41,320 --> 00:10:44,840 Speaker 1: through the Internet. Dell was able to coordinate customer orders 181 00:10:44,840 --> 00:10:48,280 Speaker 1: with its own supply chain, and that kept delivery really efficient, 182 00:10:48,320 --> 00:10:51,120 Speaker 1: and it decreased the need for maintaining those large inventories 183 00:10:51,120 --> 00:10:57,120 Speaker 1: of computers. In Dell sold it's ten million computer. It 184 00:10:57,200 --> 00:11:00,440 Speaker 1: was by then the fourth largest computer company. It was 185 00:11:00,480 --> 00:11:06,079 Speaker 1: only behind IBM, Hewett Packard and Compact. By the company 186 00:11:06,120 --> 00:11:08,920 Speaker 1: was pulling in a profit just shy of one billion 187 00:11:09,000 --> 00:11:12,600 Speaker 1: dollars and had moved up to number two and in 188 00:11:14,600 --> 00:11:18,120 Speaker 1: Dell would take first place, overtaking Compact as the largest 189 00:11:18,120 --> 00:11:21,960 Speaker 1: seller of desktop PCs. It didn't lead across all kinds 190 00:11:21,960 --> 00:11:25,000 Speaker 1: of PCs like mobile it was not as high, but 191 00:11:25,080 --> 00:11:28,360 Speaker 1: on desktops it was number one. Around this time, the 192 00:11:28,400 --> 00:11:32,720 Speaker 1: annual sales were reaching about twenty five billion dollars. The 193 00:11:32,760 --> 00:11:36,440 Speaker 1: company began to make more specialized computers like servers, including 194 00:11:36,520 --> 00:11:40,040 Speaker 1: data storage servers, which put Dell in more direct competition 195 00:11:40,080 --> 00:11:43,760 Speaker 1: with Hewett, Packard and Sun Microsystems. Compact was also in 196 00:11:43,760 --> 00:11:48,160 Speaker 1: that space. Corporate sales, however, we're starting to plateau, and 197 00:11:48,240 --> 00:11:51,360 Speaker 1: so Dell looked to make a more aggressive move in 198 00:11:51,440 --> 00:11:54,959 Speaker 1: the home consumer space. The company began to slash prices 199 00:11:55,000 --> 00:11:58,040 Speaker 1: on home computers, which prompted something of a price war 200 00:11:58,160 --> 00:12:00,920 Speaker 1: in the home computer industry. To great time to be 201 00:12:01,040 --> 00:12:03,400 Speaker 1: a shopper for a computer at that point, but not 202 00:12:03,520 --> 00:12:05,160 Speaker 1: so great if you were a company trying to make 203 00:12:05,240 --> 00:12:08,880 Speaker 1: money from it. Among Dell's competitors, there was some troubling 204 00:12:08,960 --> 00:12:13,360 Speaker 1: news Hewlett Packard and Compact. We're looking at a merger now. 205 00:12:13,400 --> 00:12:16,800 Speaker 1: That merger was a truly enormous idea. Hewett Packard CEO 206 00:12:17,040 --> 00:12:21,040 Speaker 1: Carly Fiorina had letter company in a twenty five billion 207 00:12:21,080 --> 00:12:25,280 Speaker 1: dollar merger deal with Compact, which was a pretty contentious 208 00:12:25,400 --> 00:12:29,800 Speaker 1: event Within HP. Walter Hewlett, the son of the company's 209 00:12:29,840 --> 00:12:33,520 Speaker 1: co founder, led a campaign and even a stock proxy 210 00:12:33,600 --> 00:12:38,920 Speaker 1: battle against Fiorina opposing this merger. Several shareholders were arguing 211 00:12:38,960 --> 00:12:41,840 Speaker 1: that Compacts business already had a lot of overlap with 212 00:12:41,920 --> 00:12:44,280 Speaker 1: stuff that HP was doing, and that it made no 213 00:12:44,360 --> 00:12:47,280 Speaker 1: sense for HP to get into the low margin computer 214 00:12:47,360 --> 00:12:51,760 Speaker 1: business where you're not making that much profit on a 215 00:12:51,760 --> 00:12:56,479 Speaker 1: pur sale basis. They even pointed out that the main competitor, IBM, 216 00:12:56,679 --> 00:12:59,920 Speaker 1: was actually extricating itself from that very industry. This is 217 00:13:00,080 --> 00:13:02,040 Speaker 1: right around the same time that IBM said, you know what, 218 00:13:02,200 --> 00:13:07,800 Speaker 1: we tried selling to consumers directly to home consumers. Turns 219 00:13:07,800 --> 00:13:11,680 Speaker 1: out that's an unsustainable business market for US, and they 220 00:13:11,880 --> 00:13:17,319 Speaker 1: turned their focus more to giant businesses. The merger ultimately 221 00:13:17,520 --> 00:13:21,960 Speaker 1: caused or exacerbated existing problems for HP, depending upon your 222 00:13:22,000 --> 00:13:24,640 Speaker 1: point of view, and the company would end up losing 223 00:13:24,640 --> 00:13:28,600 Speaker 1: about half of its market value. Fiorina would leave HP 224 00:13:28,760 --> 00:13:31,800 Speaker 1: in two thousand five. The company would later split into 225 00:13:31,840 --> 00:13:35,000 Speaker 1: two different companies, and zd net would refer to the 226 00:13:35,120 --> 00:13:40,080 Speaker 1: HP Compact merger as the biggest merger disaster in tech history. However, 227 00:13:41,120 --> 00:13:44,120 Speaker 1: they are not the one opinion here. There are a 228 00:13:44,120 --> 00:13:47,040 Speaker 1: lot of people who argue opposite. They say it was 229 00:13:47,040 --> 00:13:50,920 Speaker 1: a successful merger, it took time, but that ultimately it 230 00:13:51,040 --> 00:13:54,000 Speaker 1: succeeded in what it was supposed to do, and said 231 00:13:54,000 --> 00:13:56,760 Speaker 1: that the integration of the two companies ultimately worked better 232 00:13:56,800 --> 00:14:00,120 Speaker 1: than what a lot of people were predicting either a 233 00:14:00,440 --> 00:14:03,000 Speaker 1: whether you consider it a success or a failure. And 234 00:14:03,040 --> 00:14:06,680 Speaker 1: it's weird to think that people have such radically different 235 00:14:06,760 --> 00:14:10,040 Speaker 1: views of this merger. Uh. Seeing two of Dell's big 236 00:14:10,040 --> 00:14:13,800 Speaker 1: competitors joined forces probably was a little intimidating at the time. 237 00:14:14,720 --> 00:14:17,880 Speaker 1: The lowest price Dell computer in two thousand one would 238 00:14:17,880 --> 00:14:23,040 Speaker 1: be the five hundred nine dollar smart Step desktop. This 239 00:14:23,160 --> 00:14:27,320 Speaker 1: had an Intel Celeron processor. The Celeron was Intel's low 240 00:14:27,480 --> 00:14:30,840 Speaker 1: end processor. It was meant for less expensive computers, so 241 00:14:31,040 --> 00:14:33,000 Speaker 1: slightly less powerful than the stuff you would find in 242 00:14:33,040 --> 00:14:35,680 Speaker 1: the higher end machines. It came with a hundred twenty 243 00:14:35,720 --> 00:14:39,040 Speaker 1: eight megabytes of RAM, had twenty gigabytes of storage, had 244 00:14:39,080 --> 00:14:42,480 Speaker 1: a CD ROM drive, a fifteen inch cathode ray tube 245 00:14:42,520 --> 00:14:48,600 Speaker 1: monitor the old CRT monitor days those gigantic monitors, and 246 00:14:48,640 --> 00:14:51,840 Speaker 1: it also had Windows XP as the operating system. There 247 00:14:51,840 --> 00:14:55,240 Speaker 1: were no configuration options, so that helped keep the price low, 248 00:14:55,360 --> 00:14:57,360 Speaker 1: but it meant that you know what you bought was 249 00:14:57,400 --> 00:14:59,520 Speaker 1: what you got. You didn't you couldn't configure it and 250 00:14:59,560 --> 00:15:03,560 Speaker 1: make it better. In addition to slashing prices and building 251 00:15:03,600 --> 00:15:08,240 Speaker 1: inexpensive machines, Dell launched a new marketing campaign one I 252 00:15:08,280 --> 00:15:11,640 Speaker 1: remember really well. So there was an actor named Ben 253 00:15:11,720 --> 00:15:15,760 Speaker 1: Curtis who took on a role of a guy named Steve. 254 00:15:16,480 --> 00:15:18,920 Speaker 1: Steve was kind of a a laid back guy who 255 00:15:19,000 --> 00:15:22,880 Speaker 1: had a frightening lye exhaustive knowledge of Dell computers that 256 00:15:22,960 --> 00:15:28,040 Speaker 1: was matched only by his enthusiasm for Dell computers, and 257 00:15:28,080 --> 00:15:30,720 Speaker 1: he would tell people in commercials all about the amazing 258 00:15:30,760 --> 00:15:34,479 Speaker 1: specs of the various computers. Particularly, he would be addressing 259 00:15:34,520 --> 00:15:39,360 Speaker 1: the parents of a student. Hey, Mr and Mrs so, 260 00:15:39,520 --> 00:15:43,000 Speaker 1: and so your son here wants adele and would go 261 00:15:43,080 --> 00:15:45,240 Speaker 1: on to talk about all the amazing features of this 262 00:15:45,320 --> 00:15:49,360 Speaker 1: Dell computer and how it was priced so incredibly low. 263 00:15:49,920 --> 00:15:51,560 Speaker 1: When they were won over by his pitch, he would 264 00:15:51,600 --> 00:15:55,680 Speaker 1: joyfully exclaim, dude, you're getting a Dell. There were more 265 00:15:55,680 --> 00:15:58,160 Speaker 1: than twenty of those commercials, but the ads worked. They 266 00:15:58,160 --> 00:16:02,080 Speaker 1: were popular, They struck nerve, they had the right balance 267 00:16:02,160 --> 00:16:04,920 Speaker 1: of humor and information in them. They got the Dell 268 00:16:05,080 --> 00:16:08,600 Speaker 1: name into a lot more households, and Dell saw increased 269 00:16:08,680 --> 00:16:12,360 Speaker 1: sales in the home consumer market as a result, but 270 00:16:12,480 --> 00:16:16,520 Speaker 1: overall the company was still dealing with a plateau situation. 271 00:16:16,800 --> 00:16:21,480 Speaker 1: In two thousand, Dell's sales reached nearly thirty two billion dollars. 272 00:16:21,520 --> 00:16:25,000 Speaker 1: That's a lot of money. But in two thousand one 273 00:16:25,240 --> 00:16:29,320 Speaker 1: they remained flat. They didn't decline, but they didn't increase either. 274 00:16:29,600 --> 00:16:33,880 Speaker 1: And here's the thing about companies. Shareholders always want to 275 00:16:33,880 --> 00:16:36,880 Speaker 1: see a company grow because it's not enough to do well, 276 00:16:36,960 --> 00:16:40,920 Speaker 1: you have to get bigger because shareholders want their investment 277 00:16:41,000 --> 00:16:44,760 Speaker 1: to increase in value. So in February two thou one, 278 00:16:45,760 --> 00:16:49,040 Speaker 1: Dell held its first major layoff in its history, and 279 00:16:49,120 --> 00:16:52,920 Speaker 1: it cut about seventeen hundred jobs. The company was still 280 00:16:52,920 --> 00:16:55,800 Speaker 1: doing better than many of its competitors were. Some companies, 281 00:16:55,840 --> 00:16:59,440 Speaker 1: like IBM, had already pulled out the consumer market. In 282 00:16:59,480 --> 00:17:02,520 Speaker 1: two thousand one, Kevin Rawlins, the man who had acted 283 00:17:02,560 --> 00:17:05,760 Speaker 1: as a consultant for Dell a few years earlier, became 284 00:17:05,800 --> 00:17:08,960 Speaker 1: the new president of the company. Michael Dell would remain 285 00:17:09,040 --> 00:17:13,000 Speaker 1: the CEO, and Rawlins tried to diversify the company's products. 286 00:17:13,040 --> 00:17:16,960 Speaker 1: He wanted to acquire a data data storage company called 287 00:17:17,040 --> 00:17:20,359 Speaker 1: e m C. The two companies had created a distribution 288 00:17:20,440 --> 00:17:24,040 Speaker 1: deal partnership together, but Rollins felt it would be best 289 00:17:24,160 --> 00:17:27,119 Speaker 1: if Dell acquired this other company, which had been around 290 00:17:27,160 --> 00:17:31,960 Speaker 1: since nineteen Michael Dell, however, did not like this idea, 291 00:17:32,000 --> 00:17:34,080 Speaker 1: and he struck it down multiple times, and they would 292 00:17:34,160 --> 00:17:38,840 Speaker 1: argue about it several times throughout Kevin rawlins tenure as president. 293 00:17:39,240 --> 00:17:41,359 Speaker 1: Rawlins would later say that Dell was worried that this 294 00:17:41,400 --> 00:17:45,040 Speaker 1: acquisition would destabilize the company and It's funny because in 295 00:17:46,600 --> 00:17:50,360 Speaker 1: many years after Rawlins had left the company, Dell did 296 00:17:50,359 --> 00:17:53,400 Speaker 1: in fact acquire E M C for a whole lot 297 00:17:53,440 --> 00:17:55,800 Speaker 1: of money. I'll talk more about that towards the end 298 00:17:55,800 --> 00:17:59,520 Speaker 1: of this episode. Dell did start offering other products, however, 299 00:17:59,560 --> 00:18:03,480 Speaker 1: including stuff like digital audio players, printers, and televisions. This 300 00:18:03,680 --> 00:18:06,119 Speaker 1: was not in the same realm as what Rawlins was thinking. 301 00:18:06,160 --> 00:18:10,919 Speaker 1: He was thinking about infrastructure types of products, things that 302 00:18:11,000 --> 00:18:13,840 Speaker 1: companies would use to run the businesses that they do, 303 00:18:14,560 --> 00:18:17,320 Speaker 1: and Michael Dell was thinking of more sort of consumer 304 00:18:17,359 --> 00:18:22,520 Speaker 1: friendly technologies that were closer in at least in concept, 305 00:18:22,680 --> 00:18:25,399 Speaker 1: to the computers he had been building for years. In 306 00:18:25,440 --> 00:18:27,919 Speaker 1: two thousand three, the company would change its name again, 307 00:18:28,280 --> 00:18:31,480 Speaker 1: now calling itself Dell Incorporated, to help reflect that the 308 00:18:31,520 --> 00:18:35,800 Speaker 1: company was no longer focusing solely on computers. In March 309 00:18:35,840 --> 00:18:38,720 Speaker 1: two thousand four, Michael Dell decided to step down as 310 00:18:38,760 --> 00:18:41,879 Speaker 1: CEO of the company. Kevin Rawlins would take over both 311 00:18:41,920 --> 00:18:45,719 Speaker 1: as president and CEO. Michael Dell, however, would stay on 312 00:18:45,800 --> 00:18:49,119 Speaker 1: as chairman of the board, but ostensibly he had stepped 313 00:18:49,160 --> 00:18:52,359 Speaker 1: back from the daily operation of the company. This is 314 00:18:52,400 --> 00:18:54,919 Speaker 1: not the end of Michael Dell's involvement with the company 315 00:18:55,000 --> 00:18:59,119 Speaker 1: that shares his name. However, Rawlins meanwhile had set some 316 00:18:59,200 --> 00:19:02,480 Speaker 1: really high goals, and in two thousand four he had 317 00:19:02,520 --> 00:19:04,720 Speaker 1: a whole lot of momentum going behind him. He had 318 00:19:04,760 --> 00:19:07,840 Speaker 1: no reason to believe that Dell couldn't hit these goals, 319 00:19:08,080 --> 00:19:11,040 Speaker 1: so he wanted Dell to hit sixty billion dollars in 320 00:19:11,119 --> 00:19:14,920 Speaker 1: revenue by the end of two thousand six and eighty 321 00:19:14,960 --> 00:19:19,320 Speaker 1: billion by two thousand nine at the latest. He also 322 00:19:19,600 --> 00:19:22,960 Speaker 1: was guiding the company to enter into new businesses, including 323 00:19:23,000 --> 00:19:27,119 Speaker 1: providing services and not just hardware. But things did not 324 00:19:27,560 --> 00:19:31,560 Speaker 1: go smoothly. To put it lightly, not that the rough 325 00:19:31,600 --> 00:19:35,280 Speaker 1: times all fall at Rollin's feet and he's not responsible 326 00:19:35,320 --> 00:19:38,480 Speaker 1: for all of it. For one thing, corporations started to 327 00:19:38,520 --> 00:19:43,439 Speaker 1: back off their previously aggressive upgrading and purchasing strategies. A 328 00:19:43,480 --> 00:19:47,359 Speaker 1: lot of companies had been buying computers and upgrading computers 329 00:19:47,640 --> 00:19:50,879 Speaker 1: at a really aggressive schedule. So you might have a 330 00:19:50,880 --> 00:19:53,760 Speaker 1: company by all new computers for its employees and then 331 00:19:53,840 --> 00:19:57,440 Speaker 1: upgrade them a year later. But more companies were starting 332 00:19:57,440 --> 00:20:00,720 Speaker 1: to wait longer to upgrade their machines because the machines 333 00:20:00,720 --> 00:20:02,800 Speaker 1: that were coming out could still do all the work 334 00:20:02,840 --> 00:20:05,720 Speaker 1: that they needed them to do for longer they were 335 00:20:05,760 --> 00:20:09,320 Speaker 1: that fast, so there was less demand for computers, which 336 00:20:09,359 --> 00:20:11,480 Speaker 1: was a huge blow to Dell, which got about eight 337 00:20:11,680 --> 00:20:15,200 Speaker 1: five of all its revenue from its corporate clients, mostly 338 00:20:15,320 --> 00:20:18,800 Speaker 1: in North and South America. On the home consumer front, 339 00:20:19,240 --> 00:20:22,280 Speaker 1: customers were beginning to feel the latest computers in the 340 00:20:22,280 --> 00:20:26,200 Speaker 1: market offered up very few advantages compared to earlier machines. 341 00:20:26,520 --> 00:20:29,359 Speaker 1: They weren't seeing as much innovation in the space, and 342 00:20:29,520 --> 00:20:33,080 Speaker 1: customer service, which was once one of Dell's strongest features, 343 00:20:33,440 --> 00:20:37,399 Speaker 1: was now seen as an eyesore, a chore. Dell was 344 00:20:37,440 --> 00:20:41,000 Speaker 1: pushing more customers toward an online customer support model, and 345 00:20:41,040 --> 00:20:43,320 Speaker 1: the company had started to rely more heavily on customer 346 00:20:43,359 --> 00:20:48,360 Speaker 1: service representatives who were located overseas, so they weren't Customers 347 00:20:48,359 --> 00:20:52,240 Speaker 1: weren't getting the the attention, the personal attention that they 348 00:20:52,240 --> 00:20:56,880 Speaker 1: had in previous generations of Dell products anymore. Dell's competitors 349 00:20:57,080 --> 00:21:00,560 Speaker 1: were doing better. Some of them were relying more heavily 350 00:21:00,640 --> 00:21:03,760 Speaker 1: on retail stores, and Dell obviously had a showed that 351 00:21:03,920 --> 00:21:07,720 Speaker 1: they didn't like the low profit margins they were undercutting 352 00:21:07,720 --> 00:21:10,440 Speaker 1: their own sales. They found that direct cells worked better 353 00:21:10,480 --> 00:21:13,840 Speaker 1: for Dell's model. But the truth of the matter is 354 00:21:13,960 --> 00:21:17,080 Speaker 1: a lot of consumers wanted to be able to see 355 00:21:17,160 --> 00:21:21,439 Speaker 1: and touch the computers they were considering buying before they 356 00:21:21,520 --> 00:21:24,439 Speaker 1: actually put money toward it. And if your business is 357 00:21:24,440 --> 00:21:29,240 Speaker 1: dependent upon orders by phone or online, then the consumer 358 00:21:29,359 --> 00:21:31,640 Speaker 1: never gets a chance to actually try out the computer 359 00:21:31,800 --> 00:21:35,520 Speaker 1: before making that leap, so it became something of a 360 00:21:35,520 --> 00:21:39,119 Speaker 1: barrier for sales at that point. Also, desktops were starting 361 00:21:39,160 --> 00:21:41,920 Speaker 1: to lose steam and notebook computers were starting to become 362 00:21:41,920 --> 00:21:45,879 Speaker 1: more popular, and Dell was lagging behind on notebook computers. 363 00:21:46,480 --> 00:21:50,480 Speaker 1: And finally, Dell had long relied on up selling customers 364 00:21:50,480 --> 00:21:53,040 Speaker 1: with upgrades to basic computers, but by the mid two 365 00:21:53,080 --> 00:21:56,800 Speaker 1: thousand's even a basic computer was more than capable enough 366 00:21:56,840 --> 00:21:59,840 Speaker 1: to do most of the work people needed. You still 367 00:21:59,840 --> 00:22:02,840 Speaker 1: have niche markets like gamers who wanted to have the 368 00:22:02,840 --> 00:22:05,320 Speaker 1: best of the best, but for someone who wanted to 369 00:22:05,400 --> 00:22:08,800 Speaker 1: run word processing, maybe do some web browsing, that kind 370 00:22:08,800 --> 00:22:11,919 Speaker 1: of stuff, they didn't need anything more than a base model, 371 00:22:12,080 --> 00:22:15,240 Speaker 1: so they would buy the cheapest model, and that was 372 00:22:15,280 --> 00:22:18,119 Speaker 1: the one that had the lowest profit margin for the company. 373 00:22:18,200 --> 00:22:21,520 Speaker 1: So Dell was stumbling. An HP was able to regain 374 00:22:21,560 --> 00:22:24,719 Speaker 1: its spot as the largest PC company in the world. 375 00:22:25,320 --> 00:22:28,120 Speaker 1: Dell's stock had hit a high in July two thousand five, 376 00:22:28,200 --> 00:22:29,879 Speaker 1: but by the end of two thousand six the price 377 00:22:29,920 --> 00:22:33,240 Speaker 1: was down thirty seven per cent. Rollins did guide Dell 378 00:22:33,320 --> 00:22:36,680 Speaker 1: into one acquisition that I mentioned in a previous episode 379 00:22:36,680 --> 00:22:39,840 Speaker 1: of tech Stuff. That acquisition happened on March twenty, two 380 00:22:39,920 --> 00:22:43,119 Speaker 1: thousand six. That was when Dell bought the boutique gaming 381 00:22:43,160 --> 00:22:47,439 Speaker 1: computer designer company alien Ware, and alien Ware continues to 382 00:22:47,480 --> 00:22:51,880 Speaker 1: operate as a subsidiary to Dell, largely autonomous, but they 383 00:22:51,920 --> 00:22:55,280 Speaker 1: get to rely heavily on Dell's assets, which is helpful. 384 00:22:55,920 --> 00:22:58,399 Speaker 1: Then in that around that same time, there was a 385 00:22:58,520 --> 00:23:02,280 Speaker 1: video that went viral. As much as videos can at 386 00:23:02,320 --> 00:23:05,560 Speaker 1: that time, it's very widespread. It showed a Dell Notebook 387 00:23:05,560 --> 00:23:09,480 Speaker 1: computer that had burst into flames. Now, the source of 388 00:23:09,520 --> 00:23:13,080 Speaker 1: the problem was a battery, and the battery ultimately came 389 00:23:13,160 --> 00:23:15,840 Speaker 1: from Sony, and Sony ended up having to do a 390 00:23:15,880 --> 00:23:19,240 Speaker 1: big recall on these batteries. But it was a Dell 391 00:23:19,359 --> 00:23:21,960 Speaker 1: Notebook in the video, and that did not help the 392 00:23:22,000 --> 00:23:25,560 Speaker 1: company's image. To make matters worse. In August two thousand six, 393 00:23:25,920 --> 00:23:28,879 Speaker 1: Dell had to disclose that it was under investigation by 394 00:23:28,920 --> 00:23:32,280 Speaker 1: the U S Securities and Exchange Commission a k a. 395 00:23:32,480 --> 00:23:36,120 Speaker 1: The SEC. Even by the end of two thousand six, 396 00:23:36,240 --> 00:23:39,240 Speaker 1: no one really outside of the matter had any idea 397 00:23:39,280 --> 00:23:41,720 Speaker 1: of what the investigation was actually about. They just knew 398 00:23:41,720 --> 00:23:45,480 Speaker 1: what was happening. But even that was enough to cast 399 00:23:45,520 --> 00:23:48,159 Speaker 1: a bit of a pall over Dell. The details of 400 00:23:48,160 --> 00:23:51,840 Speaker 1: the investigation wouldn't become clear until years later. I'll explain 401 00:23:51,960 --> 00:23:55,200 Speaker 1: exactly what the SEC was looking at in the next section, 402 00:23:55,440 --> 00:23:59,280 Speaker 1: but first let's take another quick break to thank our sponsor. 403 00:24:07,000 --> 00:24:09,479 Speaker 1: In two thousand and seven, the board of Dell asked 404 00:24:10,200 --> 00:24:14,000 Speaker 1: Rollins to resign as president and CEO. Michael Dell would 405 00:24:14,080 --> 00:24:16,240 Speaker 1: once again come forward to take control of the company, 406 00:24:16,480 --> 00:24:20,360 Speaker 1: and the company was still under investigation for mysterious reasons 407 00:24:20,359 --> 00:24:25,560 Speaker 1: that wouldn't become clear until Dell Incorporated didn't exactly rebound 408 00:24:25,560 --> 00:24:29,040 Speaker 1: immediately under Michael Dell's leadership. The company was pursuing a 409 00:24:29,080 --> 00:24:32,240 Speaker 1: new strategy that he was calling Dell two point oh. 410 00:24:32,880 --> 00:24:35,080 Speaker 1: It was. He was working really hard to diversify the 411 00:24:35,080 --> 00:24:38,760 Speaker 1: company's product line while simultaneously reducing the number of employees 412 00:24:38,800 --> 00:24:41,680 Speaker 1: at the company, downsizing in other words, or laying people 413 00:24:41,680 --> 00:24:43,560 Speaker 1: off or firing people, however you want to word it. 414 00:24:44,119 --> 00:24:47,760 Speaker 1: Dell also began to launch carbon neutral programs for customers 415 00:24:47,760 --> 00:24:51,840 Speaker 1: that got a reputation as being a green company. Many 416 00:24:51,880 --> 00:24:53,800 Speaker 1: of the employees who were laid off were at the 417 00:24:53,840 --> 00:24:57,359 Speaker 1: management level. When Dell resumed command of the company, he 418 00:24:57,359 --> 00:25:00,719 Speaker 1: originally had twenty managers reporting directly to him. He reduced 419 00:25:00,760 --> 00:25:05,080 Speaker 1: that number to a dozen shortly thereafter. Ultimately, the company 420 00:25:05,119 --> 00:25:07,800 Speaker 1: would announce it was eliminating about ten percent of its 421 00:25:07,800 --> 00:25:11,880 Speaker 1: total workforce, which amounted to nearly nine thousand jobs. More 422 00:25:11,880 --> 00:25:14,320 Speaker 1: would follow over the course of the next couple of years. 423 00:25:14,640 --> 00:25:18,680 Speaker 1: The company also closed offices and manufacturing facilities in Canada, 424 00:25:18,840 --> 00:25:21,840 Speaker 1: in Ireland, and the United States. It began to rely 425 00:25:21,960 --> 00:25:25,120 Speaker 1: more heavily on its factories in Asia or with contract 426 00:25:25,160 --> 00:25:29,400 Speaker 1: manufacturers overseas in order to cut costs. Alien Wears facility 427 00:25:29,400 --> 00:25:32,840 Speaker 1: in Florida and a factory in Austin, Texas that we're 428 00:25:32,880 --> 00:25:38,600 Speaker 1: making high end servers remained viable. Those manufacturing facilities stayed 429 00:25:38,760 --> 00:25:42,280 Speaker 1: active because they were both higher margin businesses, but a 430 00:25:42,280 --> 00:25:45,200 Speaker 1: lot of the other manufacturing facilities started to close down. 431 00:25:45,720 --> 00:25:48,000 Speaker 1: In two thousand eight and two thousand nine, the company 432 00:25:48,040 --> 00:25:52,200 Speaker 1: made a couple of big acquisitions, bought Equal Logic, which 433 00:25:52,240 --> 00:25:56,280 Speaker 1: is a storage firm, and also Paros Systems. The company 434 00:25:56,320 --> 00:25:59,240 Speaker 1: also created a new end to end I T service 435 00:25:59,320 --> 00:26:01,840 Speaker 1: for customers. And Dell got a late start in the 436 00:26:01,880 --> 00:26:04,280 Speaker 1: smartphone market, but they did get into it. In two 437 00:26:04,320 --> 00:26:08,280 Speaker 1: thousand nine, they introduced a smartphone called the Mini three 438 00:26:08,280 --> 00:26:11,520 Speaker 1: I smartphone. It ran on an operating system called O 439 00:26:11,800 --> 00:26:15,520 Speaker 1: Phone O s the letter oh followed by the word phone. 440 00:26:16,359 --> 00:26:18,480 Speaker 1: From two thousand nine to two thousand twelve, Dell would 441 00:26:18,520 --> 00:26:21,560 Speaker 1: try to secure a spot in the smartphone landscape, but 442 00:26:21,640 --> 00:26:25,400 Speaker 1: ultimately the company would withdraw from that market. By December 443 00:26:25,400 --> 00:26:28,439 Speaker 1: two thousand twelve, Dell was done with smartphones, at least 444 00:26:28,480 --> 00:26:31,000 Speaker 1: as a manufacturer, although they would sometimes sell them in 445 00:26:31,040 --> 00:26:36,239 Speaker 1: their store. But what about that SEC investigation I mentioned earlier. Well, 446 00:26:36,280 --> 00:26:39,520 Speaker 1: In two ten, the SEC revealed that Dell had been 447 00:26:39,600 --> 00:26:43,040 Speaker 1: under investigation because of some accounting practices in which the 448 00:26:43,080 --> 00:26:46,240 Speaker 1: company had failed to declare certain payments it had received 449 00:26:46,480 --> 00:26:50,320 Speaker 1: from another little company called Intel. So here's what happened, 450 00:26:50,720 --> 00:26:54,520 Speaker 1: according to the SEC. Uh the this is, according to 451 00:26:54,520 --> 00:26:59,159 Speaker 1: the allegations, Dell received large payments from Intel in return 452 00:26:59,240 --> 00:27:03,359 Speaker 1: for a promise that Dell would not build computers using 453 00:27:03,400 --> 00:27:07,320 Speaker 1: microprocessors that were made by Intel's rival A M. D. 454 00:27:08,119 --> 00:27:11,679 Speaker 1: The practice apparently stretched back as far as two thousand three, 455 00:27:11,720 --> 00:27:14,760 Speaker 1: and the SEC said that those payments back in two 456 00:27:14,760 --> 00:27:19,040 Speaker 1: thousand three accounted for ten percent of Dell's operating income. 457 00:27:19,600 --> 00:27:22,840 Speaker 1: That amount would eventually peak in the second quarter of 458 00:27:22,880 --> 00:27:26,080 Speaker 1: the two thousand seven fiscal year for Dell. That's when 459 00:27:26,200 --> 00:27:30,680 Speaker 1: Intel's payment was seventy six percent of Dell's operating income. 460 00:27:30,800 --> 00:27:34,960 Speaker 1: That is incredible. Dell had been using that money, according 461 00:27:35,040 --> 00:27:38,359 Speaker 1: to the SEC, to help pad out numbers for sales 462 00:27:38,400 --> 00:27:41,760 Speaker 1: when reporting earnings to Wall Street. So, in other words, 463 00:27:42,280 --> 00:27:46,000 Speaker 1: Dell the company was taking money from Intel. They were 464 00:27:46,000 --> 00:27:49,760 Speaker 1: doing it for the reason to suppress one of Intel's competitors, 465 00:27:49,840 --> 00:27:53,080 Speaker 1: so sort of an anti competitive practice here, and then 466 00:27:53,359 --> 00:27:57,800 Speaker 1: use that money to beef up their own earnings two investors. Now, 467 00:27:57,840 --> 00:28:02,160 Speaker 1: without admitting it or denying any of the allegations, Dell 468 00:28:02,359 --> 00:28:05,840 Speaker 1: entered into an agreement with the SEC, which included paying 469 00:28:05,880 --> 00:28:10,560 Speaker 1: a one hundred million dollar fine. Both Kevin Rawlins and 470 00:28:10,720 --> 00:28:15,360 Speaker 1: Michael Dell individually agreed to pay four million dollars in fines. 471 00:28:16,240 --> 00:28:19,520 Speaker 1: They also did not admit to or deny any of 472 00:28:19,560 --> 00:28:23,040 Speaker 1: the charges. Dell was really having trouble with its business 473 00:28:23,040 --> 00:28:25,240 Speaker 1: model at this time too. It was also finding it 474 00:28:25,359 --> 00:28:29,080 Speaker 1: challenging to enter the services market, partly because while Dell 475 00:28:29,320 --> 00:28:32,760 Speaker 1: made hardware, the products that it made still relied on 476 00:28:32,840 --> 00:28:37,560 Speaker 1: other companies software. Meanwhile, Dell's competitors, some of them were 477 00:28:37,560 --> 00:28:40,880 Speaker 1: making integrated systems. They were building the hardware and the software, 478 00:28:41,280 --> 00:28:43,680 Speaker 1: and so it made that a more attractive system for 479 00:28:43,760 --> 00:28:46,880 Speaker 1: a lot of companies. So Dell was having trouble entering 480 00:28:46,920 --> 00:28:50,080 Speaker 1: into this field, and the company recognized that that was 481 00:28:50,760 --> 00:28:54,360 Speaker 1: really a a potential good source of revenue if they 482 00:28:54,360 --> 00:28:58,880 Speaker 1: could just crack it in. Michael Dell decided that extreme 483 00:28:58,920 --> 00:29:03,440 Speaker 1: measures were necessary. He felt the company had strayed off 484 00:29:03,440 --> 00:29:06,320 Speaker 1: of its path significantly and needed to get into the 485 00:29:06,400 --> 00:29:09,600 Speaker 1: services industry. But at the same time, it was beholden 486 00:29:09,600 --> 00:29:14,320 Speaker 1: to shareholders, and shareholders might end up holding the company 487 00:29:14,360 --> 00:29:18,200 Speaker 1: back from making some big, risky decisions. So he led 488 00:29:18,400 --> 00:29:22,520 Speaker 1: the charge to buy back the company, effectively turning it 489 00:29:22,600 --> 00:29:27,120 Speaker 1: back into a private company. Michael Dell, Silver Lake Partners, 490 00:29:27,360 --> 00:29:30,400 Speaker 1: and Microsoft would work together to make this deal happen, 491 00:29:30,840 --> 00:29:35,440 Speaker 1: and it cost nearly twenty five billion dollars. The deal 492 00:29:35,520 --> 00:29:38,280 Speaker 1: was eventually approved by the board and the group purchased 493 00:29:38,320 --> 00:29:41,760 Speaker 1: all shares of Dell for thirteen dollars eighty eight cents 494 00:29:41,800 --> 00:29:44,840 Speaker 1: per share, and so it was a private company once again. 495 00:29:45,240 --> 00:29:49,440 Speaker 1: In the five years since going private, Dell invested billions 496 00:29:49,560 --> 00:29:53,840 Speaker 1: of dollars in expanding its business in hardware, software, and services, 497 00:29:54,160 --> 00:29:57,160 Speaker 1: including the acquisition of e m C. That was the 498 00:29:57,160 --> 00:29:59,760 Speaker 1: company that Kevin Rawlins wanted to purchase way back in 499 00:29:59,800 --> 00:30:03,880 Speaker 1: the mid two thousand's. When Dell actually did acquire the company, 500 00:30:03,920 --> 00:30:07,360 Speaker 1: they did so for sixties seven billion dollars, which was 501 00:30:07,400 --> 00:30:10,960 Speaker 1: a record breaking deal for tech companies. The new parent 502 00:30:11,040 --> 00:30:14,280 Speaker 1: company of both Dell that makes computers and e MC 503 00:30:14,680 --> 00:30:20,120 Speaker 1: is Dell Technologies. Some company divisions, like the Infrastructure Solutions Group, 504 00:30:20,240 --> 00:30:23,600 Speaker 1: have been doing pretty well, doubling and revenue over time 505 00:30:23,720 --> 00:30:28,440 Speaker 1: as it sells products and services to businesses. Others, like 506 00:30:28,560 --> 00:30:32,040 Speaker 1: the Clients Solutions Group division, have seen their revenues on 507 00:30:32,080 --> 00:30:34,360 Speaker 1: the decline. The Client Solutions Group is the part of 508 00:30:34,360 --> 00:30:39,760 Speaker 1: Dell that produces computers and peripherals. In early July, rumors 509 00:30:39,800 --> 00:30:43,560 Speaker 1: were confirmed and Dell Incorporated released an announcement that the 510 00:30:43,640 --> 00:30:47,760 Speaker 1: company plans to once again go public. So five years 511 00:30:47,800 --> 00:30:50,960 Speaker 1: ago they go private. Now they're ready to go public again, 512 00:30:50,960 --> 00:30:53,360 Speaker 1: holding a new initial public offering. And it's a very 513 00:30:53,360 --> 00:30:57,360 Speaker 1: different company from that old upgrade kit business that Michael 514 00:30:57,440 --> 00:30:59,480 Speaker 1: Dell launched out of his dorm room while at the 515 00:30:59,520 --> 00:31:04,600 Speaker 1: University of Texas. Today, Dell's focus tends to be on 516 00:31:04,760 --> 00:31:11,280 Speaker 1: big things like infrastructure, storage devices, data centers, and services, 517 00:31:11,320 --> 00:31:15,120 Speaker 1: not just hardware but services to corporations. The company still 518 00:31:15,120 --> 00:31:17,640 Speaker 1: makes computers and you can still buy them, but the 519 00:31:17,760 --> 00:31:20,920 Speaker 1: bulk of the revenues come from much bigger clients than 520 00:31:20,960 --> 00:31:24,320 Speaker 1: your average home consumer. And Dell has invested in an 521 00:31:24,360 --> 00:31:28,200 Speaker 1: area sometimes called fog or edge computing. This is a 522 00:31:28,440 --> 00:31:30,720 Speaker 1: type of computing in which you have sensors and other 523 00:31:30,760 --> 00:31:35,040 Speaker 1: devices that not only gather data, but also process it 524 00:31:35,120 --> 00:31:38,600 Speaker 1: to at least some extent, before sending that information onward 525 00:31:38,600 --> 00:31:41,640 Speaker 1: towards the cloud. It's a little bit different from this 526 00:31:41,760 --> 00:31:46,760 Speaker 1: standard Internet of Things operating procedure in that field, devices 527 00:31:46,800 --> 00:31:49,120 Speaker 1: stream data directly to the cloud and that's where the 528 00:31:49,160 --> 00:31:51,720 Speaker 1: data is processed. So it's really just a matter of 529 00:31:51,800 --> 00:31:54,720 Speaker 1: where does the data get its initial processing, and then 530 00:31:54,720 --> 00:31:58,120 Speaker 1: what do you use that information for? Where will Dell 531 00:31:58,240 --> 00:32:01,320 Speaker 1: go next. Who's to say what The company is scheduled 532 00:32:01,360 --> 00:32:05,440 Speaker 1: to hold its I p O later in UH. There's 533 00:32:05,440 --> 00:32:08,480 Speaker 1: no telling exactly how well that will go yet, and 534 00:32:08,960 --> 00:32:11,840 Speaker 1: Dell has some big challenges ahead of it. It's still 535 00:32:12,000 --> 00:32:16,360 Speaker 1: very much a hardware focused company, and some people say 536 00:32:16,400 --> 00:32:19,760 Speaker 1: that maybe that ends up being a danger to it 537 00:32:19,800 --> 00:32:22,000 Speaker 1: in the long run, because more and more people are 538 00:32:22,000 --> 00:32:25,720 Speaker 1: saying the cloud, cloud services are where it's at. The 539 00:32:25,760 --> 00:32:29,120 Speaker 1: problem is, Dell is way behind on the cloud services game. 540 00:32:29,160 --> 00:32:32,520 Speaker 1: You've already got companies like Amazon and Google that have 541 00:32:33,400 --> 00:32:39,320 Speaker 1: uh really firmly put a foundation down in cloud services, 542 00:32:39,360 --> 00:32:43,320 Speaker 1: so for Dell to compete with them would be particularly challenging. Now, 543 00:32:43,320 --> 00:32:47,000 Speaker 1: it is true that cloud services depend upon hardware, so 544 00:32:47,200 --> 00:32:50,720 Speaker 1: you can't run a cloud service without actually having computers 545 00:32:50,760 --> 00:32:54,160 Speaker 1: to run it off of. But it's also true that 546 00:32:54,280 --> 00:32:58,200 Speaker 1: these other companies, these big cloud companies, for the most part, 547 00:32:58,280 --> 00:33:01,840 Speaker 1: are building their own proprietaries systems or they're building them 548 00:33:01,880 --> 00:33:04,520 Speaker 1: off of off the shelf components, very much the way 549 00:33:04,600 --> 00:33:08,720 Speaker 1: Dell Computers had done for years. So it remains to 550 00:33:08,720 --> 00:33:11,840 Speaker 1: be seen whether Dell can cater to those cloud services 551 00:33:11,880 --> 00:33:14,719 Speaker 1: companies or rise up next to them to be another 552 00:33:14,800 --> 00:33:19,200 Speaker 1: big cloud services operator. Uh, there are huge challenges ahead. 553 00:33:19,200 --> 00:33:22,880 Speaker 1: In the meantime, the company continues to make computers, alien Where, 554 00:33:23,640 --> 00:33:29,440 Speaker 1: continues to operate as a largely a high end gaming 555 00:33:29,520 --> 00:33:34,160 Speaker 1: computer retailer, and uh, the world keeps on spinning. Man. 556 00:33:34,520 --> 00:33:37,600 Speaker 1: I'm sure I will end up revisiting this topic sometime 557 00:33:37,640 --> 00:33:40,280 Speaker 1: in the future to talk about what else Dell has 558 00:33:40,280 --> 00:33:43,000 Speaker 1: been up to. But in the meantime that catches us 559 00:33:43,080 --> 00:33:46,680 Speaker 1: up to the company today. If you guys have suggestions 560 00:33:46,720 --> 00:33:49,520 Speaker 1: for future episodes of tech Stuff, whether it is a company, 561 00:33:49,840 --> 00:33:52,760 Speaker 1: a technology, a person in tech, maybe there's someone you 562 00:33:52,760 --> 00:33:54,920 Speaker 1: would like me to interview or have on as a guest, 563 00:33:55,280 --> 00:33:57,880 Speaker 1: let me know. Send me a message. The email address 564 00:33:57,920 --> 00:34:00,720 Speaker 1: for our show is tech Stuff at how stuff Works 565 00:34:00,760 --> 00:34:03,840 Speaker 1: dot com, or drop me a line on Facebook or Twitter. 566 00:34:03,920 --> 00:34:07,080 Speaker 1: The handle there is tech Stuff h s W and 567 00:34:07,160 --> 00:34:10,520 Speaker 1: don't forget You can also follow us on Instagram and 568 00:34:10,640 --> 00:34:19,319 Speaker 1: I'll talk to you again really soon for more on 569 00:34:19,400 --> 00:34:21,880 Speaker 1: this and thousands of other topics. 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