It’s become something of a common public perception that Dell is a company in crisis.
Fourth-quarter revenue down 11%, profit down 31%, and its founder engaged in a battle with investors to delist from the stock market to buy time and space for a radical overhaul – these are pretty solid indicators that all is not well.
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But Dell’s undoubted challenges are linked almost entirely to the decline in its core PC market. Look beyond the desktop and into the datacentre and the story is a lot more positive.
Server, networking and storage sales are on the rise, and Dell continues to be aggressively acquisitive as part of what its new UK CEO Tim Griffin calls an “accelerated transformation”.
So it was timely to be invited to meet with the senior leadership team from Dell’s enterprise solutions business, who were in London this week to meet customers, greet the troops, and no doubt try to reassure them all that the future is better than some of the press coverage would have you believe.
Executives were very non-committal on founder Michael Dell’s plan to take the company into private ownership – “Business as usual, no matter what happens,” declared Marius Haas, president of the enterprise solutions group, closely followed by the usual stream of carefully rehearsed on-message statements that you get from most US senior managers at IT suppliers.
(I can’t help but think the company would benefit from a more down to earth response to inevitable questions about the de-listing plan – “Things are tough, we admit that, and we know radical changes are needed, but we’re going to do what it takes” – that sort of thing. But on-message was the big message).
Dell’s server chief, Forrest Norrod, was typical of the bullishness among the non-PC business divisions, predicting that Dell will be the number one x86 server supplier by the end of the year.
Critics say that Dell missed the rise of the cloud, but Norrod says differently – while Dell may not be competing as a public cloud provider, it is a major supplier of servers and storage to companies that are, and is doing nicely as a result, he says.
Every exec was all too happy to point to chief rival HP as a better example of a company trying to shed a reputation as a basket case.
But the server chief told me an anecdote that perhaps gives the company’s best response to the critics.
He was up late one night, unable to sleep, when his email pings with a message from Michael – at one o’clock in the morning. Norrod proceeds to engage the CEO in a back and forth that lasts until nearly 2am. Jokingly, Norrod emails Michael to say – hey, we’ve both got kids, what are we doing talking business at this time of the morning?
To which Michael Dell emails back to conclude the conversation with a single sentence: “I like to win”.
Dell’s transformation is essential and nobody will pretend it’s going to be easy (well, when they’re not relentlessly on-message, at least).
One of the great fallacies about Dell is that the consumer decline in PC sales is life threatening – that’s simply not the case. About 80% of Dell’s PC sales have always come from businesses – falling consumer sales sting, but are not the biggest problem.
There will be one more iteration of corporate PC sales for Dell as customers upgrade from Windows XP to Windows 7 before the end of XP support in April 2014. But that will be the catalyst for a subsequent slump in the corporate PC market too, and that’s the deadline by which Dell has to resolve its dilemma and reduce its reliance on the market for which it has always been best known.
You used to buy from Dell because of its great supply chain – quality, highly customised PC configurations, delivered cost-effectively and quickly. Then everybody improved their supply chain and that advantage was reduced.
It’s taken a long time to get the company out of that mindset. I can remember being told Dell was on the road to being a software and services company nearly 10 years ago. IT services and outsourcing was going to be the saviour – but that didn’t happen. So now, the immediate future is in the datacentre and eventually the cloud – an environment every bit as competitive as the PC market at its peak, albeit with somewhat higher margins.
Michael Dell is trying to achieve something that has never been done before – take a major, multinational, multibillion-dollar company off the stock market to change its structure and strategy, without the pressure and intensity of having to deliver growth to investors every three months.
I think he’s doing the right thing. The transformation needed at Dell simply could not happen under the rapacious watch of the financial markets. The scale of change needed does show that the change is happening later than it should – the emotional connection to the PC market is proving hard to break.
If he succeeds in de-listing, it will be an interesting few years comparing Dell’s behind-closed-doors transformation with HP’s very public and often painful “multi-year turnaround plan” under CEO Meg Whitman.
But you don’t found a company in your bedroom, grow it to a $60bn giant, and then not be up for a fight for survival.
Michael Dell likes to win. That’s no guarantee that he will, but his corporate customers should give him the time to make it happen – although their patience will not last forever.