Dell's Private: Now Comes The Hard Part

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Investing In The Future

Some of those losses in its software division track back to big investments Dell is making in research and development, according to the company's financial report. Michael Dell said spending in R&D is growing 25 percent year over year. "We are investing heavily in organic growth. We have an army of 20,000 developers and engineers developing new products and software," he said.

R&D spending at Dell has been low relative to its peers, estimated at $1 billion a year, or 1.5 percent of revenue. By comparison, HP spends 2.8 percent of its revenue on R&D and Cisco spends 12 percent, according to a Bloomberg analysis. Why is R&D so important? With Dell's aging PC business and cloud computing
on the rise (ultimately meaning Dell will sell less hardware) it needs new tricks in a hurry if it wants to grow.

Michael Dell seems to agree, telling CRN that being competitive "requires more R&D, more capabilities and having the innovative solutions to help a company accomplish their goals." And now, as a private company, he can make R&D a priority. As for access to capital, he said, being a private company makes a big difference. "We have access to all the capital we need. The capital structure we have is better. It is more flexible and allows us to invest more in channel partners, R&D and growth now that we don't have this short-term pressure."

"We are already impressed with Dell's investments in R&D," Davenport Group's Clifford said. Some of those innovations include Dell's Compellent Flash-optimized storage, which uses a mix of Flash and disk drives, for higher performance and lower cost, and Dell's PowerEdge VRTX, which combines servers, storage, networking and management software into a single box.

All this transformation is hard work. So one of the biggest head-scratchers for many outsiders is why does Michael Dell — the 25th richest person on the planet, with a personal wealth of $16 billion, according to Forbes — want to tackle the enormous task of remaking Dell?

"You ever try doing nothing for a while?" he said. "You look at all the big unsolved problems out there—the environment, education and health care. A lot of those problems are computational. Our potential for good is what motivates me."

Steve Burke contributed to this story.

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