Speaker 1: Get in touch with technology with tech Stuff from how
Speaker 1: stuff Works dot com. Hey there, and welcome to tech Stuff.
Speaker 1: I'm your host, Jonathan Strickland. I'm an executive producer at
Speaker 1: how Stuff Works and I love all things tech, and
Speaker 1: today we are continuing our story about Dell Computers. If
Speaker 1: you haven't heard the most recent episode, go and listen
Speaker 1: to that because that's part one. This is part two
Speaker 1: and will be the conclusion for now for Dell because
Speaker 1: the company spoiler alert is still around, so um yeah,
Speaker 1: I'll probably have to do an update at some point
Speaker 1: in the future. But in our last episode, I left
Speaker 1: off in when Fortune magazine first ranked Dell computers on
Speaker 1: the Fortune List. But a lot of stuff was going
Speaker 1: on that year. In addition to that, Dell released a
Speaker 1: laptop full color notebook computer, but the mobile computers Dell
Speaker 1: produced were plagued with technical issues that vexed customers and
Speaker 1: Dell representatives alike. By the company was essentially forced to
Speaker 1: scrap the notebook line of products, entirely writing off the
Speaker 1: division and taking a forty million dollar hit against earnings
Speaker 1: to do so. Yikes. Engineers went back to the drawing
Speaker 1: board to design mobile computers that did not have such
Speaker 1: problematic technological issues. Also in ninete, Dell lost thirty eight
Speaker 1: million dollars due to an issue with foreign currencies. Now
Speaker 1: this gets a bit business ee, but it's important for
Speaker 1: any corporation with global operations, and it's really not that
Speaker 1: difficult to understand from a high level. So let's talk
Speaker 1: about it first. Imagine you've got your home base of operations,
Speaker 1: So for Dell, that's the United States, and the basic
Speaker 1: unit of currency in the United States is the American dollar.
Speaker 1: But Dell also does business in other places, such as
Speaker 1: the United Kingdom, where the basic unit of currency is
Speaker 1: the haypenny or the far thing or something. Just kidding,
Speaker 1: of course, it's the pounds sterling. So an American company
Speaker 1: receiving money from a British customer has to exchange the
Speaker 1: customers pounds sterling to American dollars because it has to
Speaker 1: cross borders. So the American company says, all right, well,
Speaker 1: we'll take your pounds sterling, we'll go to an exchange
Speaker 1: exchange it for American dollars, and that's the payment. Or
Speaker 1: if an American company is paying a bill to a
Speaker 1: British person or a company, it has to exchange American
Speaker 1: dollars for pounds sterling. This is true for any two
Speaker 1: foreign currencies. Of course, I'm just using dollars and pounds
Speaker 1: for the sake of an example, but you know, it
Speaker 1: could be euro and end, it can be whatever. Ultimately,
Speaker 1: business dealings between the US headquarters and British holdings have
Speaker 1: to depend upon a currency exchange, and the American dollar
Speaker 1: and the pound sterling do not hold the same value.
Speaker 1: What's more, the value of each can change with respect
Speaker 1: to the other. So let's just start off with the
Speaker 1: current exchange rate as of the recording of this podcast.
Speaker 1: For this example, one pound sterling is equal to one
Speaker 1: point three three American dollars. But that value can change,
Speaker 1: and it's possible that it can change in such a
Speaker 1: way that a company could get the worst end of
Speaker 1: a deal because of an exchange. So let's say an
Speaker 1: American company accepts a payment, which would be a receivable
Speaker 1: in business terms, and there's a British customer. The British
Speaker 1: customer pays for a brand new computer, and the exchange
Speaker 1: rate at the point where the British customer buys the
Speaker 1: computer is at one point three three dollars to the
Speaker 1: pounds sterling, and the British customer is paying in pounds
Speaker 1: because that's what they have. It gets converted to American dollars.
Speaker 1: But then, let's say the britsh customer gets his or
Speaker 1: her computer, they run it for a little bit and
Speaker 1: they say, this isn't what I wanted. I'm gonna want
Speaker 1: a refund, So they return the product in order to
Speaker 1: get a refund. Only now the exchange rate has changed.
Speaker 1: Now the exchange rate is one point four or American
Speaker 1: dollars per pounds sterling. Now the British customer bought his
Speaker 1: or her computer in pounds, they expect the same number
Speaker 1: of pounds in return. Let's say that they spent seven
Speaker 1: hundred pounds on this computer. They expect a refund of
Speaker 1: seven hundred pounds. But now seven hundred pounds costs more
Speaker 1: American dollars than it used to because the pound is
Speaker 1: stronger against the dollar than it had been during the
Speaker 1: initial exchange. That means, ultimately the American company has to
Speaker 1: pay more in the refund than it got in the
Speaker 1: initial purchase. The company loses money on the refund. To
Speaker 1: protect against that sort of thing, companies sometimes use a
Speaker 1: strategy called hedging. So, for example, a company might make
Speaker 1: an agreement that locks in an exchange rate for a transaction,
Speaker 1: and that exchange rate determines how much value must be exchanged.
Speaker 1: So let's say that they lock in this one point
Speaker 1: three three American dollars to pounds sterling. Then, whenever the
Speaker 1: deal happens, because there was this agreement to lock in
Speaker 1: the exchange rate, that's the rate that is used to
Speaker 1: convert American dollars to pound sterling, no matter what the
Speaker 1: current exchange rate actually is. So the amount of money
Speaker 1: that changes hands could be slightly different than what it
Speaker 1: should be based on the exchange rate. Or the company
Speaker 1: might use options in which the company gets to set
Speaker 1: an exchange rate that it can opt to use, but
Speaker 1: if the actual exchange rate is more favorable, then the
Speaker 1: company can switch over to that one instead. So again,
Speaker 1: let's say that the American company says, all right, we
Speaker 1: agree with an option to go with one point three
Speaker 1: three American dollars to pound sterling. When the deal is
Speaker 1: ready to happen, some for some reason, the British pound
Speaker 1: has gone weak against the dollar, and now it's more
Speaker 1: like one point to five American dollars to British pounds
Speaker 1: sterling because of the option approach. The American company says, Nope,
Speaker 1: we're going to exercise our option and we're going to
Speaker 1: exchange at the current rate because will save more money
Speaker 1: that way. I'm not entirely certain what specific hedging strategy
Speaker 1: Dell Computers was using in the early nineties. Most of
Speaker 1: the articles I could find merely said that the foreign
Speaker 1: currency exchange hedging strategy was a total fiasco and it
Speaker 1: cost the company nearly forty million dollars as a result.
Speaker 1: To top it all off, Dell began to face competition
Speaker 1: in the form of Compact. Now, previously, Compact had been
Speaker 1: known for selling much more expensive computers, but Compact released
Speaker 1: a PC price at eight dollars. They were really taking
Speaker 1: aim at Dell's position in the marketplace. Dell responded by
Speaker 1: making some big price cuts in their own products, which
Speaker 1: the company could afford to do because their operating costs
Speaker 1: were much lower than compacts operating costs, so they had
Speaker 1: a little more wiggle room to work with prices, and
Speaker 1: the profit margins on Dell machines decreased, but the company
Speaker 1: was able to maintain its position in the market. It
Speaker 1: wasn't forced out by Compact. This combination of factors led
Speaker 1: the company to post its first quarterly loss in its
Speaker 1: history in nineteen. That quarterly loss was for seventy five
Speaker 1: million dollars, but the company was able to recover slightly
Speaker 1: within that fiscal year. At the end of the fiscal
Speaker 1: year they did. They still posted a loss, but their
Speaker 1: loss was thirty six million, which is terrible, but better
Speaker 1: than seventy five million that was for the fiscal year
Speaker 1: ending on January nineteen. Now, several things changed at that time.
Speaker 1: One was that Dell Computers, upon the advice of a
Speaker 1: consultant named Kevin Rawlins, would pull its products out of
Speaker 1: retail establishments. So they said goodbye to comp us A
Speaker 1: and Walmart and Sam's Club, and they decided to no
Speaker 1: longer use resellers at all. The company had been undercutting
Speaker 1: its own revenue and also had to maintain much larger
Speaker 1: inventories for those retailers than when it was just doing
Speaker 1: the direct sales to customers. So Rollins would end up
Speaker 1: coming over to join Dell Computers as a full time employee.
Speaker 1: He'll come back into the story in just a moment.
Speaker 1: Another change was that Dell Computers stopped focusing on the
Speaker 1: consumer market as its primary customers. The laptop problems, the
Speaker 1: increased competition from Compact, and the recession had all been
Speaker 1: factors in that consideration. Also, Dell's corporate clients were becoming
Speaker 1: increasingly important and representing a much larger source of regular revenue,
Speaker 1: so for the next couple of years, Dell would switch
Speaker 1: its focus almost entirely towards selling computers to companies and
Speaker 1: to large organizations, not to your average consumer. In nineteen
Speaker 1: mort Topford joined the company as vice chairman. Mort Topf
Speaker 1: had formerly worked as an executive at Motorola, and his
Speaker 1: original plan was just to act as an advisor for
Speaker 1: Michael Dell for just a few months, and he had
Speaker 1: even built a retirement home for his wife and himself
Speaker 1: to share in Nevada, but he ended up staying around
Speaker 1: with the company for five years. He acted as another
Speaker 1: mentor to Michael Dell. He helped guide the company through
Speaker 1: restructuring and through growth, and he also took on more
Speaker 1: of the operations of the company so that Michael Dell
Speaker 1: could focus primarily on long term strategies and the big picture.
Speaker 1: The company righted itself that year by n Dell reported
Speaker 1: profits of one hundred forty nine million dollars. It also
Speaker 1: grew by fifty percent, and Dell had entered the online
Speaker 1: world and joined the information super highway. The company launched
Speaker 1: a website now in nine. It was largely an informative website.
Speaker 1: It was not an e commerce site, so essentially, we'll
Speaker 1: tell you, hey, call this phone number if you want
Speaker 1: to buy a computer. Dell would actually launch an online
Speaker 1: store the following year in nine. Six months after launch,
Speaker 1: that website was generating one million dollars in sales per
Speaker 1: day through the website. Three years later, the company was
Speaker 1: making more than thirty million dollars in sales per day
Speaker 1: online selling directly to consumers over the internet. It was
Speaker 1: the Internet that allowed Dell to get back on that
Speaker 1: model of marketing directly to home consumers as well as
Speaker 1: to corporations. While Dell continued to serve big corporate clients,
Speaker 1: it once again could court those average consumers, all thanks
Speaker 1: to the Internet. Now, I have a lot more to
Speaker 1: say about what Dell Computers was doing, but before I
Speaker 1: go into that, let's take a quick break to thank
Speaker 1: our sponsor. In nine, the company continued to do huge
Speaker 1: business both in its corporate accounts and with direct sales
Speaker 1: through the Internet. Dell was able to coordinate customer orders
Speaker 1: with its own supply chain, and that kept delivery really efficient,
Speaker 1: and it decreased the need for maintaining those large inventories
Speaker 1: of computers. In Dell sold it's ten million computer. It
Speaker 1: was by then the fourth largest computer company. It was
Speaker 1: only behind IBM, Hewett Packard and Compact. By the company
Speaker 1: was pulling in a profit just shy of one billion
Speaker 1: dollars and had moved up to number two and in
Speaker 1: Dell would take first place, overtaking Compact as the largest
Speaker 1: seller of desktop PCs. It didn't lead across all kinds
Speaker 1: of PCs like mobile it was not as high, but
Speaker 1: on desktops it was number one. Around this time, the
Speaker 1: annual sales were reaching about twenty five billion dollars. The
Speaker 1: company began to make more specialized computers like servers, including
Speaker 1: data storage servers, which put Dell in more direct competition
Speaker 1: with Hewett, Packard and Sun Microsystems. Compact was also in
Speaker 1: that space. Corporate sales, however, we're starting to plateau, and
Speaker 1: so Dell looked to make a more aggressive move in
Speaker 1: the home consumer space. The company began to slash prices
Speaker 1: on home computers, which prompted something of a price war
Speaker 1: in the home computer industry. To great time to be
Speaker 1: a shopper for a computer at that point, but not
Speaker 1: so great if you were a company trying to make
Speaker 1: money from it. Among Dell's competitors, there was some troubling
Speaker 1: news Hewlett Packard and Compact. We're looking at a merger now.
Speaker 1: That merger was a truly enormous idea. Hewett Packard CEO
Speaker 1: Carly Fiorina had letter company in a twenty five billion
Speaker 1: dollar merger deal with Compact, which was a pretty contentious
Speaker 1: event Within HP. Walter Hewlett, the son of the company's
Speaker 1: co founder, led a campaign and even a stock proxy
Speaker 1: battle against Fiorina opposing this merger. Several shareholders were arguing
Speaker 1: that Compacts business already had a lot of overlap with
Speaker 1: stuff that HP was doing, and that it made no
Speaker 1: sense for HP to get into the low margin computer
Speaker 1: business where you're not making that much profit on a
Speaker 1: pur sale basis. They even pointed out that the main competitor, IBM,
Speaker 1: was actually extricating itself from that very industry. This is
Speaker 1: right around the same time that IBM said, you know what,
Speaker 1: we tried selling to consumers directly to home consumers. Turns
Speaker 1: out that's an unsustainable business market for US, and they
Speaker 1: turned their focus more to giant businesses. The merger ultimately
Speaker 1: caused or exacerbated existing problems for HP, depending upon your
Speaker 1: point of view, and the company would end up losing
Speaker 1: about half of its market value. Fiorina would leave HP
Speaker 1: in two thousand five. The company would later split into
Speaker 1: two different companies, and zd net would refer to the
Speaker 1: HP Compact merger as the biggest merger disaster in tech history. However,
Speaker 1: they are not the one opinion here. There are a
Speaker 1: lot of people who argue opposite. They say it was
Speaker 1: a successful merger, it took time, but that ultimately it
Speaker 1: succeeded in what it was supposed to do, and said
Speaker 1: that the integration of the two companies ultimately worked better
Speaker 1: than what a lot of people were predicting either a
Speaker 1: whether you consider it a success or a failure. And
Speaker 1: it's weird to think that people have such radically different
Speaker 1: views of this merger. Uh. Seeing two of Dell's big
Speaker 1: competitors joined forces probably was a little intimidating at the time.
Speaker 1: The lowest price Dell computer in two thousand one would
Speaker 1: be the five hundred nine dollar smart Step desktop. This
Speaker 1: had an Intel Celeron processor. The Celeron was Intel's low
Speaker 1: end processor. It was meant for less expensive computers, so
Speaker 1: slightly less powerful than the stuff you would find in
Speaker 1: the higher end machines. It came with a hundred twenty
Speaker 1: eight megabytes of RAM, had twenty gigabytes of storage, had
Speaker 1: a CD ROM drive, a fifteen inch cathode ray tube
Speaker 1: monitor the old CRT monitor days those gigantic monitors, and
Speaker 1: it also had Windows XP as the operating system. There
Speaker 1: were no configuration options, so that helped keep the price low,
Speaker 1: but it meant that you know what you bought was
Speaker 1: what you got. You didn't you couldn't configure it and
Speaker 1: make it better. In addition to slashing prices and building
Speaker 1: inexpensive machines, Dell launched a new marketing campaign one I
Speaker 1: remember really well. So there was an actor named Ben
Speaker 1: Curtis who took on a role of a guy named Steve.
Speaker 1: Steve was kind of a a laid back guy who
Speaker 1: had a frightening lye exhaustive knowledge of Dell computers that
Speaker 1: was matched only by his enthusiasm for Dell computers, and
Speaker 1: he would tell people in commercials all about the amazing
Speaker 1: specs of the various computers. Particularly, he would be addressing
Speaker 1: the parents of a student. Hey, Mr and Mrs so,
Speaker 1: and so your son here wants adele and would go
Speaker 1: on to talk about all the amazing features of this
Speaker 1: Dell computer and how it was priced so incredibly low.
Speaker 1: When they were won over by his pitch, he would
Speaker 1: joyfully exclaim, dude, you're getting a Dell. There were more
Speaker 1: than twenty of those commercials, but the ads worked. They
Speaker 1: were popular, They struck nerve, they had the right balance
Speaker 1: of humor and information in them. They got the Dell
Speaker 1: name into a lot more households, and Dell saw increased
Speaker 1: sales in the home consumer market as a result, but
Speaker 1: overall the company was still dealing with a plateau situation.
Speaker 1: In two thousand, Dell's sales reached nearly thirty two billion dollars.
Speaker 1: That's a lot of money. But in two thousand one
Speaker 1: they remained flat. They didn't decline, but they didn't increase either.
Speaker 1: And here's the thing about companies. Shareholders always want to
Speaker 1: see a company grow because it's not enough to do well,
Speaker 1: you have to get bigger because shareholders want their investment
Speaker 1: to increase in value. So in February two thou one,
Speaker 1: Dell held its first major layoff in its history, and
Speaker 1: it cut about seventeen hundred jobs. The company was still
Speaker 1: doing better than many of its competitors were. Some companies,
Speaker 1: like IBM, had already pulled out the consumer market. In
Speaker 1: two thousand one, Kevin Rawlins, the man who had acted
Speaker 1: as a consultant for Dell a few years earlier, became
Speaker 1: the new president of the company. Michael Dell would remain
Speaker 1: the CEO, and Rawlins tried to diversify the company's products.
Speaker 1: He wanted to acquire a data data storage company called
Speaker 1: e m C. The two companies had created a distribution
Speaker 1: deal partnership together, but Rollins felt it would be best
Speaker 1: if Dell acquired this other company, which had been around
Speaker 1: since nineteen Michael Dell, however, did not like this idea,
Speaker 1: and he struck it down multiple times, and they would
Speaker 1: argue about it several times throughout Kevin rawlins tenure as president.
Speaker 1: Rawlins would later say that Dell was worried that this
Speaker 1: acquisition would destabilize the company and It's funny because in
Speaker 1: many years after Rawlins had left the company, Dell did
Speaker 1: in fact acquire E M C for a whole lot
Speaker 1: of money. I'll talk more about that towards the end
Speaker 1: of this episode. Dell did start offering other products, however,
Speaker 1: including stuff like digital audio players, printers, and televisions. This
Speaker 1: was not in the same realm as what Rawlins was thinking.
Speaker 1: He was thinking about infrastructure types of products, things that
Speaker 1: companies would use to run the businesses that they do,
Speaker 1: and Michael Dell was thinking of more sort of consumer
Speaker 1: friendly technologies that were closer in at least in concept,
Speaker 1: to the computers he had been building for years. In
Speaker 1: two thousand three, the company would change its name again,
Speaker 1: now calling itself Dell Incorporated, to help reflect that the
Speaker 1: company was no longer focusing solely on computers. In March
Speaker 1: two thousand four, Michael Dell decided to step down as
Speaker 1: CEO of the company. Kevin Rawlins would take over both
Speaker 1: as president and CEO. Michael Dell, however, would stay on
Speaker 1: as chairman of the board, but ostensibly he had stepped
Speaker 1: back from the daily operation of the company. This is
Speaker 1: not the end of Michael Dell's involvement with the company
Speaker 1: that shares his name. However, Rawlins meanwhile had set some
Speaker 1: really high goals, and in two thousand four he had
Speaker 1: a whole lot of momentum going behind him. He had
Speaker 1: no reason to believe that Dell couldn't hit these goals,
Speaker 1: so he wanted Dell to hit sixty billion dollars in
Speaker 1: revenue by the end of two thousand six and eighty
Speaker 1: billion by two thousand nine at the latest. He also
Speaker 1: was guiding the company to enter into new businesses, including
Speaker 1: providing services and not just hardware. But things did not
Speaker 1: go smoothly. To put it lightly, not that the rough
Speaker 1: times all fall at Rollin's feet and he's not responsible
Speaker 1: for all of it. For one thing, corporations started to
Speaker 1: back off their previously aggressive upgrading and purchasing strategies. A
Speaker 1: lot of companies had been buying computers and upgrading computers
Speaker 1: at a really aggressive schedule. So you might have a
Speaker 1: company by all new computers for its employees and then
Speaker 1: upgrade them a year later. But more companies were starting
Speaker 1: to wait longer to upgrade their machines because the machines
Speaker 1: that were coming out could still do all the work
Speaker 1: that they needed them to do for longer they were
Speaker 1: that fast, so there was less demand for computers, which
Speaker 1: was a huge blow to Dell, which got about eight
Speaker 1: five of all its revenue from its corporate clients, mostly
Speaker 1: in North and South America. On the home consumer front,
Speaker 1: customers were beginning to feel the latest computers in the
Speaker 1: market offered up very few advantages compared to earlier machines.
Speaker 1: They weren't seeing as much innovation in the space, and
Speaker 1: customer service, which was once one of Dell's strongest features,
Speaker 1: was now seen as an eyesore, a chore. Dell was
Speaker 1: pushing more customers toward an online customer support model, and
Speaker 1: the company had started to rely more heavily on customer
Speaker 1: service representatives who were located overseas, so they weren't Customers
Speaker 1: weren't getting the the attention, the personal attention that they
Speaker 1: had in previous generations of Dell products anymore. Dell's competitors
Speaker 1: were doing better. Some of them were relying more heavily
Speaker 1: on retail stores, and Dell obviously had a showed that
Speaker 1: they didn't like the low profit margins they were undercutting
Speaker 1: their own sales. They found that direct cells worked better
Speaker 1: for Dell's model. But the truth of the matter is
Speaker 1: a lot of consumers wanted to be able to see
Speaker 1: and touch the computers they were considering buying before they
Speaker 1: actually put money toward it. And if your business is
Speaker 1: dependent upon orders by phone or online, then the consumer
Speaker 1: never gets a chance to actually try out the computer
Speaker 1: before making that leap, so it became something of a
Speaker 1: barrier for sales at that point. Also, desktops were starting
Speaker 1: to lose steam and notebook computers were starting to become
Speaker 1: more popular, and Dell was lagging behind on notebook computers.
Speaker 1: And finally, Dell had long relied on up selling customers
Speaker 1: with upgrades to basic computers, but by the mid two
Speaker 1: thousand's even a basic computer was more than capable enough
Speaker 1: to do most of the work people needed. You still
Speaker 1: have niche markets like gamers who wanted to have the
Speaker 1: best of the best, but for someone who wanted to
Speaker 1: run word processing, maybe do some web browsing, that kind
Speaker 1: of stuff, they didn't need anything more than a base model,
Speaker 1: so they would buy the cheapest model, and that was
Speaker 1: the one that had the lowest profit margin for the company.
Speaker 1: So Dell was stumbling. An HP was able to regain
Speaker 1: its spot as the largest PC company in the world.
Speaker 1: Dell's stock had hit a high in July two thousand five,
Speaker 1: but by the end of two thousand six the price
Speaker 1: was down thirty seven per cent. Rollins did guide Dell
Speaker 1: into one acquisition that I mentioned in a previous episode
Speaker 1: of tech Stuff. That acquisition happened on March twenty, two
Speaker 1: thousand six. That was when Dell bought the boutique gaming
Speaker 1: computer designer company alien Ware, and alien Ware continues to
Speaker 1: operate as a subsidiary to Dell, largely autonomous, but they
Speaker 1: get to rely heavily on Dell's assets, which is helpful.
Speaker 1: Then in that around that same time, there was a
Speaker 1: video that went viral. As much as videos can at
Speaker 1: that time, it's very widespread. It showed a Dell Notebook
Speaker 1: computer that had burst into flames. Now, the source of
Speaker 1: the problem was a battery, and the battery ultimately came
Speaker 1: from Sony, and Sony ended up having to do a
Speaker 1: big recall on these batteries. But it was a Dell
Speaker 1: Notebook in the video, and that did not help the
Speaker 1: company's image. To make matters worse. In August two thousand six,
Speaker 1: Dell had to disclose that it was under investigation by
Speaker 1: the U S Securities and Exchange Commission a k a.
Speaker 1: The SEC. Even by the end of two thousand six,
Speaker 1: no one really outside of the matter had any idea
Speaker 1: of what the investigation was actually about. They just knew
Speaker 1: what was happening. But even that was enough to cast
Speaker 1: a bit of a pall over Dell. The details of
Speaker 1: the investigation wouldn't become clear until years later. I'll explain
Speaker 1: exactly what the SEC was looking at in the next section,
Speaker 1: but first let's take another quick break to thank our sponsor.
Speaker 1: In two thousand and seven, the board of Dell asked
Speaker 1: Rollins to resign as president and CEO. Michael Dell would
Speaker 1: once again come forward to take control of the company,
Speaker 1: and the company was still under investigation for mysterious reasons
Speaker 1: that wouldn't become clear until Dell Incorporated didn't exactly rebound
Speaker 1: immediately under Michael Dell's leadership. The company was pursuing a
Speaker 1: new strategy that he was calling Dell two point oh.
Speaker 1: It was. He was working really hard to diversify the
Speaker 1: company's product line while simultaneously reducing the number of employees
Speaker 1: at the company, downsizing in other words, or laying people
Speaker 1: off or firing people, however you want to word it.
Speaker 1: Dell also began to launch carbon neutral programs for customers
Speaker 1: that got a reputation as being a green company. Many
Speaker 1: of the employees who were laid off were at the
Speaker 1: management level. When Dell resumed command of the company, he
Speaker 1: originally had twenty managers reporting directly to him. He reduced
Speaker 1: that number to a dozen shortly thereafter. Ultimately, the company
Speaker 1: would announce it was eliminating about ten percent of its
Speaker 1: total workforce, which amounted to nearly nine thousand jobs. More
Speaker 1: would follow over the course of the next couple of years.
Speaker 1: The company also closed offices and manufacturing facilities in Canada,
Speaker 1: in Ireland, and the United States. It began to rely
Speaker 1: more heavily on its factories in Asia or with contract
Speaker 1: manufacturers overseas in order to cut costs. Alien Wears facility
Speaker 1: in Florida and a factory in Austin, Texas that we're
Speaker 1: making high end servers remained viable. Those manufacturing facilities stayed
Speaker 1: active because they were both higher margin businesses, but a
Speaker 1: lot of the other manufacturing facilities started to close down.
Speaker 1: In two thousand eight and two thousand nine, the company
Speaker 1: made a couple of big acquisitions, bought Equal Logic, which
Speaker 1: is a storage firm, and also Paros Systems. The company
Speaker 1: also created a new end to end I T service
Speaker 1: for customers. And Dell got a late start in the
Speaker 1: smartphone market, but they did get into it. In two
Speaker 1: thousand nine, they introduced a smartphone called the Mini three
Speaker 1: I smartphone. It ran on an operating system called O
Speaker 1: Phone O s the letter oh followed by the word phone.
Speaker 1: From two thousand nine to two thousand twelve, Dell would
Speaker 1: try to secure a spot in the smartphone landscape, but
Speaker 1: ultimately the company would withdraw from that market. By December
Speaker 1: two thousand twelve, Dell was done with smartphones, at least
Speaker 1: as a manufacturer, although they would sometimes sell them in
Speaker 1: their store. But what about that SEC investigation I mentioned earlier. Well,
Speaker 1: In two ten, the SEC revealed that Dell had been
Speaker 1: under investigation because of some accounting practices in which the
Speaker 1: company had failed to declare certain payments it had received
Speaker 1: from another little company called Intel. So here's what happened,
Speaker 1: according to the SEC. Uh the this is, according to
Speaker 1: the allegations, Dell received large payments from Intel in return
Speaker 1: for a promise that Dell would not build computers using
Speaker 1: microprocessors that were made by Intel's rival A M. D.
Speaker 1: The practice apparently stretched back as far as two thousand three,
Speaker 1: and the SEC said that those payments back in two
Speaker 1: thousand three accounted for ten percent of Dell's operating income.
Speaker 1: That amount would eventually peak in the second quarter of
Speaker 1: the two thousand seven fiscal year for Dell. That's when
Speaker 1: Intel's payment was seventy six percent of Dell's operating income.
Speaker 1: That is incredible. Dell had been using that money, according
Speaker 1: to the SEC, to help pad out numbers for sales
Speaker 1: when reporting earnings to Wall Street. So, in other words,
Speaker 1: Dell the company was taking money from Intel. They were
Speaker 1: doing it for the reason to suppress one of Intel's competitors,
Speaker 1: so sort of an anti competitive practice here, and then
Speaker 1: use that money to beef up their own earnings two investors. Now,
Speaker 1: without admitting it or denying any of the allegations, Dell
Speaker 1: entered into an agreement with the SEC, which included paying
Speaker 1: a one hundred million dollar fine. Both Kevin Rawlins and
Speaker 1: Michael Dell individually agreed to pay four million dollars in fines.
Speaker 1: They also did not admit to or deny any of
Speaker 1: the charges. Dell was really having trouble with its business
Speaker 1: model at this time too. It was also finding it
Speaker 1: challenging to enter the services market, partly because while Dell
Speaker 1: made hardware, the products that it made still relied on
Speaker 1: other companies software. Meanwhile, Dell's competitors, some of them were
Speaker 1: making integrated systems. They were building the hardware and the software,
Speaker 1: and so it made that a more attractive system for
Speaker 1: a lot of companies. So Dell was having trouble entering
Speaker 1: into this field, and the company recognized that that was
Speaker 1: really a a potential good source of revenue if they
Speaker 1: could just crack it in. Michael Dell decided that extreme
Speaker 1: measures were necessary. He felt the company had strayed off
Speaker 1: of its path significantly and needed to get into the
Speaker 1: services industry. But at the same time, it was beholden
Speaker 1: to shareholders, and shareholders might end up holding the company
Speaker 1: back from making some big, risky decisions. So he led
Speaker 1: the charge to buy back the company, effectively turning it
Speaker 1: back into a private company. Michael Dell, Silver Lake Partners,
Speaker 1: and Microsoft would work together to make this deal happen,
Speaker 1: and it cost nearly twenty five billion dollars. The deal
Speaker 1: was eventually approved by the board and the group purchased
Speaker 1: all shares of Dell for thirteen dollars eighty eight cents
Speaker 1: per share, and so it was a private company once again.
Speaker 1: In the five years since going private, Dell invested billions
Speaker 1: of dollars in expanding its business in hardware, software, and services,
Speaker 1: including the acquisition of e m C. That was the
Speaker 1: company that Kevin Rawlins wanted to purchase way back in
Speaker 1: the mid two thousand's. When Dell actually did acquire the company,
Speaker 1: they did so for sixties seven billion dollars, which was
Speaker 1: a record breaking deal for tech companies. The new parent
Speaker 1: company of both Dell that makes computers and e MC
Speaker 1: is Dell Technologies. Some company divisions, like the Infrastructure Solutions Group,
Speaker 1: have been doing pretty well, doubling and revenue over time
Speaker 1: as it sells products and services to businesses. Others, like
Speaker 1: the Clients Solutions Group division, have seen their revenues on
Speaker 1: the decline. The Client Solutions Group is the part of
Speaker 1: Dell that produces computers and peripherals. In early July, rumors
Speaker 1: were confirmed and Dell Incorporated released an announcement that the
Speaker 1: company plans to once again go public. So five years
Speaker 1: ago they go private. Now they're ready to go public again,
Speaker 1: holding a new initial public offering. And it's a very
Speaker 1: different company from that old upgrade kit business that Michael
Speaker 1: Dell launched out of his dorm room while at the
Speaker 1: University of Texas. Today, Dell's focus tends to be on
Speaker 1: big things like infrastructure, storage devices, data centers, and services,
Speaker 1: not just hardware but services to corporations. The company still
Speaker 1: makes computers and you can still buy them, but the
Speaker 1: bulk of the revenues come from much bigger clients than
Speaker 1: your average home consumer. And Dell has invested in an
Speaker 1: area sometimes called fog or edge computing. This is a
Speaker 1: type of computing in which you have sensors and other
Speaker 1: devices that not only gather data, but also process it
Speaker 1: to at least some extent, before sending that information onward
Speaker 1: towards the cloud. It's a little bit different from this
Speaker 1: standard Internet of Things operating procedure in that field, devices
Speaker 1: stream data directly to the cloud and that's where the
Speaker 1: data is processed. So it's really just a matter of
Speaker 1: where does the data get its initial processing, and then
Speaker 1: what do you use that information for? Where will Dell
Speaker 1: go next. Who's to say what The company is scheduled
Speaker 1: to hold its I p O later in UH. There's
Speaker 1: no telling exactly how well that will go yet, and
Speaker 1: Dell has some big challenges ahead of it. It's still
Speaker 1: very much a hardware focused company, and some people say
Speaker 1: that maybe that ends up being a danger to it
Speaker 1: in the long run, because more and more people are
Speaker 1: saying the cloud, cloud services are where it's at. The
Speaker 1: problem is, Dell is way behind on the cloud services game.
Speaker 1: You've already got companies like Amazon and Google that have
Speaker 1: uh really firmly put a foundation down in cloud services,
Speaker 1: so for Dell to compete with them would be particularly challenging. Now,
Speaker 1: it is true that cloud services depend upon hardware, so
Speaker 1: you can't run a cloud service without actually having computers
Speaker 1: to run it off of. But it's also true that
Speaker 1: these other companies, these big cloud companies, for the most part,
Speaker 1: are building their own proprietaries systems or they're building them
Speaker 1: off of off the shelf components, very much the way
Speaker 1: Dell Computers had done for years. So it remains to
Speaker 1: be seen whether Dell can cater to those cloud services
Speaker 1: companies or rise up next to them to be another
Speaker 1: big cloud services operator. Uh, there are huge challenges ahead.
Speaker 1: In the meantime, the company continues to make computers, alien Where,
Speaker 1: continues to operate as a largely a high end gaming
Speaker 1: computer retailer, and uh, the world keeps on spinning. Man.
Speaker 1: I'm sure I will end up revisiting this topic sometime
Speaker 1: in the future to talk about what else Dell has
Speaker 1: been up to. But in the meantime that catches us
Speaker 1: up to the company today. If you guys have suggestions
Speaker 1: for future episodes of tech Stuff, whether it is a company,
Speaker 1: a technology, a person in tech, maybe there's someone you
Speaker 1: would like me to interview or have on as a guest,
Speaker 1: let me know. Send me a message. The email address
Speaker 1: for our show is tech Stuff at how stuff Works
Speaker 1: dot com, or drop me a line on Facebook or Twitter.
Speaker 1: The handle there is tech Stuff h s W and
Speaker 1: don't forget You can also follow us on Instagram and
Speaker 1: I'll talk to you again really soon for more on
Speaker 1: this and thousands of other topics. Because it how stuff
Speaker 1: Works dot Com