The $24.4 billion proposal to privatize U.S. technology giant Dell is part of founder Michael Dell's efforts to transform the company into a 'mini IBM', said analysts, as the world's third largest personal computer (PC) maker struggles to protect its market share against competitors.
If the deal is approved, tech experts said this will pose a threat to key rival Hewlett Packard (HP), which has also been undergoing a similar strategy shift towards a greater focus on the higher-margin enterprise services space.
"What they [Dell] want to be is IBM – they are not there yet - but they want to focus on enterprise services and solutions – they want to run the IT departments of large and small corporations and government agencies, that's the direction they want to go in," Charles Sizemore, chief investment officer at Sizemore Capital Management told CNBC on Wednesday.
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IBM, the world's largest technology services firm, derives 57 percent of its revenues from enterprise services, compared with around 30 percent for both Dell and HP.
IBM, once a dominant player and pioneer in the PC space, sold its business to Lenovo in 2004 to focus on its software and services businesses. Previous to this, in 2002, the company also acquired the consulting arm of PricewaterhouseCoopers, helping to cement its position as a dominant player in technology services.
Brian White, managing director and senior analyst at Topeka Capital Markets, agreed that Dell is aiming to transform into a "mini IBM," adding that privatization will give the company an opportunity to "de-emphasize" its legacy PC business without the scrutiny of Wall Street.
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"It's going to give them the breathing room to focus on some of the initiatives that they have been trying to do in the enterprise market - services and software. Investors tend to lose patience during these transitions, as a private company there is a lot less bureaucracy," White said.
He added that five years down the line, he would be surprised if Dell had a PC business at all.
Dell's global PC market share – which has been steadily declining – stands at 10.7 percent, lower than Lenovo's 14.8 percent.
"It's a tough businesses, no one is buying their (Dell) tablets…in the longer term, Asian companies will dominate," he said, pointing to China's Lenovo and Taiwan-based Asustek
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HP vs Dell
According to analysts, HP will face the most pressure from Dell's privatization as it is its direct competitor in both the PC and enterprise services space.
Following the announcement of the company's possible transition from a public to a private company, HP issued a statement saying, Dell has a "very tough road ahead," at it faces an extended period of uncertainty that will not be good for its customers. It added that Dell's ability to invest in new products and services will be "extremely limited".
Market watchers noted while Dell will fund the privation through taking on debt – including a $2 billion loan from business partner Microsoft - the company is in a solid financial position, compared with its rival.
"Dell is a leaner company, they are going to be able to execute the transition better. HP has been a train wreck for years, (CEO) Meg Whitman hasn't been able to turn the company around. It's a big, bloated company," Sizemore said.
By going private, Cindy Shaw, managing director and research analyst at investment research firm DISCERN, added that Dell could accept lower margins on many of its products and services in the short-term to build market share, threatening industry players and raising the barriers for entry for enterprise hopefuls such as Lenovo.
Impact on IBM
Overall, a greater push by Dell into the enterprise segment would not have a sizable impact on IBM, analysts said.
"We view IBM as less threatened due to its large business helping customers solve business problems – not just IT problems – and its ability to evolve," Shaw said.
Sizemore added that Dell and IBM would only be competing over securing new clients, not stealing existing customers, as businesses tend to enter into long-term contracts with the company.
"IBM's existing business isn't at risk – I don't see them trembling in their boots right now," he said. IBM shares fell 0.5 percent to $202.79 on Tuesday following the news of the privatization, while Dell shares rose 0.2 percent to close at $13.42.