The Changing State of Dell
Dell Inc. has lost its second-place footing in worldwide PC sales to Lenovo Group, Ltd. this quarter, while simultaneously issuing a warning to Hewlett-Packard Co. regarding the proposed separation of its PC business. The company also hosted its first enterprise user conference this week in an effort to articulate its vision and demonstrate its enterprise-class offerings.
Focal Points:
- Dell is losing ground to Lenovo in worldwide PC shipments as the Chinese company claimed the number two spot during the third quarter. While Dell's growth decreased one percent from the same quarter last year, Lenovo achieved a 13.5 percent market share compared with Dell's 11.6 percent share, according to research reports. Lenovo has been concentrating on increasing its presence in developing markets while protecting its strength in its home market as China has begun to outpace the U.S. as the largest purchaser of PCs. Worldwide, sales grew in the mid-three percent range, which is down from projections ranging between 4.5 and 5.1 percent. Many attribute the slowdown in PC sales to the rise of alternative computing devices, including tablets, and to a lesser degree, smartphones.
- Dell CEO Michael Dell is taking the opportunity at the company's first enterprise user conference to demonstrate corporate customer concern over HP's possible spin-off of its PC business, even offering detailed analysis of the strategy's failings. In a survey commissioned by the company, 46 percent of the 130 interviewed HP customers with more than 500 employees stated they are "less likely to purchase HP products and services" as a result of the August 18th announcement. While HP remains in first place and posted a strong third quarter featuring more than five percent growth, Michael Dell likens the excision of the PC business to cutting off a leg of a stool. Dell's rationale includes the continued growth of the PC business, which is expected to grow overall by 33 percent by the end of the decade. Additionally, he cites the potential loss of supply chain buying power across HP's manufacturing businesses, and customer desire to forge strong relationships across the range of available computing hardware.
- Part of the purpose behind Dell's first enterprise user conference is to convince its customers that it is a viable option for services beyond just raw hardware. The company has been on a buying spree over the last two years, beginning with its purchase of enterprise services vendor Perot Systems. Attendees at the conference were repeatedly told and shown how Dell is creating an IT ecosystem that encompasses links throughout the value chain by delivering automated functionality for asset management, cloud enablement, data center system integration, networking, and storage. Among the highlights revealed are the new line of PowerEdge 12G servers, which employ new memory virtualization and flash storage technology. The result of technology integrated from Dell's numerous acquisitions will be servers capable of up to 1,024 cores, more than 40 terabytes (TBs) or RAM, and 40 TB of flash. Other new Dell capabilities will be hardware configuration management through its Kace acquisition, Compellent's deduplication capabilities, and a line of pre-configured VStart offerings, which use hardware and software combinations to allow more rapid deployment of virtualized environments.
Experton Group believes Dell is smart to strike while the iron is hot, having, rather convincingly, continued to take air out of HP's proposed split with its PC line while simultaneously speaking to the biggest enterprise customer needs at its first corporate user conference. Dell's challenge lies not in its recently-acquired technology portfolio or in timing — both of which are well positioned. Rather, it is infinitely harder to climb up the value ladder than it is do move down, and Dell is a company that has spent much of its history extolling the virtues of supply chain management and cost controls. Not only does Dell have little experience in building or productizing new innovations, but it now must morph itself into a class-leading venture capable of articulating and executing a vision in a dynamic, evolving space. This requires numerous factors including strict adherence to an overall integrated architecture while being pliable enough to react to changing demands and encourage third-party support. Moreover, the company must retain and integrate the talent it has acquired quickly as pressures are competitive offerings are rapidly taking stage. IT executives invested in, or considering, Dell hardware and software offerings should work with Dell to understand how it intends to bring its new offerings into a holistic, manageable architecture and adopt solutions where rewards outweigh the risks. Market presence, multi-vendor support, and the ability to migrate to alternative strategies should be among the critical components evaluated.