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Dell is repeating wayward history of Wang

Mark Veverka
Special for USA TODAY
Dell offices in Santa Clara, Calif.
  • Battle to take Dell private is largely much ado about nothing in the long-term
  • Private or public%2C Dell is unlikely to be much of a force going forward
  • Dell made transition to full-service provider to corporate customers later rather than sooner

SAN FRANCISCO -- Dell is the new Wang.

That's right, Wang Laboratories. Remember them? Wang was on top of the computing world in the late 20th century before a couple of guys named Bill (Gates) and Steve (Jobs) and their engineering whiz-kid pals, such as Apple's Steve Wozniak, began to rock Wang's world.

Massachusetts-based Wang was a pioneer in mini-computing, which was a better mousetrap than mainframe computing. The rise of the mini-computer dominated the tech landscape until something called "client-server computing" emerged in the late 1980s. The client-server generation is another name for the "personal computer era" – a time when PCs were connected to central server computers via a network. The upshot: Mini-computers were quickly supplanted by faster, cheaper client-server networks, making the likes of Wang relatively obsolete.

Most folks point to the initial public offering of Microsoft in 1985 as the beginning of the client-server era as the software maker's Windows operating system fueled the rise of personal computers. Windows was so dominatingly successful that the federal courts deemed it a monopoly. Michael Dell's personal computer outfit was a big beneficiary of the Windows ecosystem, along with Intel, whose computer chips were designed to power personal computers using Windows.

USA TODAY columnist Mark Veverka.

Dell was to client-server computing as Wang was to mini-computing. Yet all good things must come to an end, and for technology behemoths, the end seems to come sooner rather than later. The shelf lives of hugely successful tech giants tend to run shorter than other industrial giants because the velocity of change in information technology simply is more intensified than, say, the soap or steel businesses.

Critics and pundits have wrongly accused Dell founder, Michael Dell, of not being an innovator; he was solely a brilliant marketer that built personal computers cheaply. Yes, he was all that. But he did innovate. Dell created one of the greatest manufacturing and distribution models in the history of business. His build-to-order personal computer operation, which bypassed wholesalers and retailers by delivering custom-built machines directly to consumers and companies, was a masterstroke.

But the advantages of Dell's business model largely were eroded by commoditization of the PC industry and the emergence of notebook, or laptop, computers. Competitors, such as Hewlett-Packard, Lenovo and Acer, eventually caught up.

Seeing the writing on the wall, IBM unloaded its PC business to China's Lenovo in 2005. It retooled and expanded into a one-stop shop for corporate technology needs, diversifying into software, storage, networking and most important, services and consulting. IBM is the rare breed that has traversed the rocky shoals of mainframe to client-server to what is now the cloud-computing era.

Dell made the transition to a full-service provider of technology to corporate customers later rather than sooner. It remains a manufacturer of computers, servers and other gear but has expanded into consulting with its acquisition of Perot Systems. But it probably was too little, too late to compete with Google, Amazon.com and other cloud-computing stalwarts.

That's why the battle to take Dell private is largely much ado about nothing in the long-term. Private or public, Dell is unlikely to be much of a force going forward. Of course, the deal is still very important to Dell employees, shareholders and corporate governance watchers.

Starting in the spring, Michael Dell has been trying to take Dell, the suburban Austin, Texas, company he founded, private. Critics have charged that Dell and private-equity firm Silver Lake together have been trying to "steal" the company at $13.65 per share. As we pointed out in Unplugged on May 14, shrewd investment outfits such as Silver Lake aren't in the business of overpaying. Shareholders had reason to seek a higher offer.

Enter investor activist Carl Icahn, who makes a habit of pressuring boards to seek higher payouts to shareholders. Although it looks as if Icahn won't get to elect his own board, it appears that Dell shareholders will get an offer that is possibly sweet enough to pass a deal.

Shareholders not affiliated with Michael Dell are expected to be offered $13.75 a share, which is up 10 cents a share. The deal could also include a special dividend of 13 cents per share, which would come from Dell's cash account.

If the deal closes after October, shareholders could receive another quarterly dividend of 8 cents per share, says Wells Fargo senior hardware analyst Maynard Um. All told, shareholders could earn a total payout as high as $470 million. Um says the sweetened offer increases the chances of shareholders voting in favor of the deal. Icahn has started legal action to prevent changes that would accommodate passage of the revised offer, he added.

As for Wang, it hung around for years after the rise of personal computers but never really recovered, filing for bankruptcy before being acquired. A privately held Dell could fare better, but regardless of the buyout drama, its best days are certainly in the rear-view mirror.

Mark Veverka is a technology columnist with more than 25 years of financial journalism experience. He was previously a columnist at Barron's, The Wall Street Journal and the San Francisco Chronicle.

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