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An industry veteran, Tom Sweet, chief financial officer of Dell Technologies, has seen the highs and lows in the tech sector, from the dotcom bubble in the late 1990s that eventually burst, to more recently, the big tech layoffs that have hit broad segments of the industry.
While at Dell, Sweet also saw the company make headline-grabbing acquisitions like EMC and other major moves, including its return to the public market and the spinoff of VMware. Today, even as the company navigates the current macroeconomic headwinds, the company remains well positioned for the future, Sweet told Computer Weekly during a recent visit to Singapore.
In a wide-ranging interview, Sweet spoke about the recent layoffs at Dell, how the company is building a more resilient supply chain and tapping growth areas such as multicloud, the internet of things and other opportunities in its infrastructure business.
You’ve been with Dell for 25 years and you’ve seen how the company has evolved. How is the company navigating the current macroeconomic challenges, and where do you see Dell moving forward?
Sweet: The current macroeconomic environment is a bit challenging as central banks have focused on pushing inflation down through interest rate hikes, sort of compressing growth.
Having said that – and we’ve been pretty clear on this as we went through the year – we’ve seen softer demand as companies become more cautious given the uncertainty in the environment.
I don’t know how long that will last, but I think it’s important to step back and look at the underlying technology trends, in terms of the amount of data that’s being created in the world and real-time decision-making at the edge of the network. If you look at things like the modernisation of telecoms infrastructure with the roll-out of 5G and what companies are doing around the globe, we are very optimistic about the longer-term trends and importance of technology.
We recognise that we’ve got a little navigation to do in the short term as we work our way through the current economic cycle. We’ve been very much focused on the strategic investments that we need to continue to make – edge, multicloud, our Apex as-a-service capability and telecom investments – and pulling back in other areas to balance our portfolio in the environment. I’m optimistic, but we’ve got a little bit of work to do to work our way through the environment we’re in right now.
Could you talk to me about how Dell is navigating supply chain challenges?
Sweet: We have a global supply chain, and I think our supply chain management is one of our competitive strengths. We have been focused on how to manage our supply chain and the diversification of our supply chain for quite some time. We have a big supply chain in China, and we had to navigate through the Covid restrictions there. I think the team did a really nice job as a result of that. Not that China’s not important to us, but that was just from a customer resiliency and customer stability perspective.
Tom Sweet, Dell Technologies
We’re looking at our semiconductor resiliency and how we can ensure the continuity of supply. You might have heard that we reached out to our supply base and OEMs [original equipment manufacturers] to have conversations about improving stability and resiliency. That’s an area we’re focused on given the global nature of the semiconductor shortages we’ve seen. We’re proactive on how we manage our supply chain. We’ll continue to work our way through that and I’m optimistic that the team will do a good job of it.
Dell is about a $100bn business and roughly 40% of revenue comes from the infrastructure solutions group. Do you see that percentage growing at some point, and in the longer term, Dell diversifying away from the PC business?
Sweet: It’s a fair question, and if you look at our business today, 65% are PC revenues and roughly 35% are in the infrastructure space. If you look at the growth trajectories of the addressable market, I think it’s fair to say we expect the infrastructure business to continue to grow at a faster pace than the PC business over the intermediate term.
Obviously, we just came through the Covid cycle, which had some different dynamics, given the use of the PC as the ultimate work, entertainment and communication device. We think that utility will continue, but I think PC growth is going to be more normalised, albeit at an overall higher level. What I mean by that is that pre-Covid PC unit shipments, on an annualised basis, were somewhere around 260 million units. We think that would reach somewhere in the 280 to 300 million-unit range over the intermediate term, so that growth rate is going to be relatively small.
I also think there are opportunities in the internet of things space. In terms of growth trajectory, if you look at the acceleration of investment in technology-enabled business models, and as technology gets pushed out to the edge, I think consumption models will be different there.
And so, the addressable market will continue to grow, which is pretty interesting for us. Dell’s total addressable market right now is about $1.4tn, and $700m of that is what we focus on in our core business in client computing and infrastructure. There’s another $700m of adjacency around that core, whether it’s edge, multicloud, data capabilities and telecoms, which are growth areas that we’re focused on.
You talked about the changes in consumption model. How are customers warming to Apex in that regard? How is Apex changing the way you’re doing business with customers, and how is Dell making sure the entire organisation moves ahead with this model?
Sweet: It’s clear that customers are embracing different economic models. In many cases, customers no longer want to use capital expenditure to own technology. They don’t want to manage the technology. They’re more focused on outcomes and the underlying mission of what they’re trying to do. And so, the whole as-a-service focus is around giving customers choice in terms of how they want to consume technology.
Customers are naturally trying to understand the advantages of the model and how they should utilise it. But it’s clear that they’re interested, and we’ve seen rapid growth in as-a-service offerings. We announced earlier in the year that we have tipped over a billion dollars of annualised recurring revenue related to Apex. We’re very much interested in continuing to grow that business, and we’re also broadening the number of offerings under the Apex brand.
The other thing to think about right now is that in a challenging economic environment, some markets more than others, the Apex model is pretty interesting in that it enables customers to acquire technology without outlaying significant upfront investments. It’s driving even more incremental interest as a result.
Having said that, customers can also scale down their investments like some have done with their committed spending with hyperscalers. How is Dell navigating that sort of unpredictability?
Sweet: It’s a different model from what you’re referring to, with, say, AWS, where your company might make a five-year X-dollar commitment to consume those capabilities. And you’re right in some respects – and I can’t speak for them – that there are companies that have gone back and said they are not going to be able to consume it all. They generally ended up renegotiating the agreement and maybe extending or upsizing the agreement.
Tom Sweet, Dell Technologies
In our case, we typically offer customers the flexibility to scale up and down based on the consumption they’re seeing with their solution set. I haven’t actually seen a lot of customers walk away from a solution. The reality is that with the amount of data creation that’s happening, we typically see customers utilising the solution at a much more rapid rate than what they originally thought. We haven’t seen a lot of customers step back from their investments if they have that flexibility.
You spoke about the investments that Dell is making. Could you elaborate on what those investments are going to be amid rising interest rates? Do you see those investments being reprioritised when it comes to R&D?
Sweet: We roughly spend about 4% of our revenue on R&D, which has been stable and slightly growing. As you might imagine, we’re actively managing where we’re spending R&D dollars and we’re very much focused on three or four large initiatives, including multicloud. When I was having conversations with customers five to seven years ago, you might imagine every time we got into a conversation on datacentre infrastructure, it was about taking everything to the public cloud, and there was not going to be much on-premise. I’m being a bit simplistic, but you get the point.
I think the world has evolved in its thinking, where it’s not going to be all public cloud or all on-premise. It’s a multicloud world, as you know, and customers are telling us they need help with managing workloads and data on platforms that are going to reside on public cloud, on-premise, private hosting, or private cloud environments. And so, we’re very much focused on developing capabilities to help them achieve operability across various platforms. That’s one big investment area for us.
Another area is telecoms. The advent of 5G and the roll-out of 5G networks by telecoms companies across the globe are very much focused on modernising their network infrastructure. We’re seeing a move away from proprietary hardware and software stacks to an open environment. That’s an interesting opportunity for us, because if you think about the x86 architecture, service capability integration and computing capabilities at the edge, the telecom network is the ultimate edge opportunity.
If you look at technology cycles, it was a centralised architecture with mainframes in the ’60s and ’70s, but when you got to the x86 architecture, it was decentralised. We have public cloud now, which is centralised, but compute and storage are also getting pushed out to the edge of the network, so it’s decentralising again.
And so, customers are telling us they want to be able to manage workloads and data at the edge and their applications tend to be much more industry-specific. We’re building out what we call Project Frontier, our horizontal edge software platform, to help manage and operate at the edge along with unique technology offerings.
The other one is cyber security. The world of cyber has exploded due to the threats that are out there. We’re very much focused on helping our customers protect themselves against ransomware, with the ability to recover through our Cyber Recovery Vault.
The other side of that is that we’re going to have to thin out investments in certain areas. We’re trying to focus more of our R&D spend on new capabilities and emerging areas versus some of the older, more stable areas.
We’ve been closely covering Dell’s spinoff of VMware and the acquisition of VMware by Broadcom. Has that had any impact on the investment areas that you’ve described?
Sweet: VMware is very much a key part in those areas, alongside other solutions by Red Hat, for instance. We have a deep commercial relationship with VMware where we’re jointly developing services and capabilities, as well as going to market together. I can’t speak for VMware and Broadcom, but I will tell you that we believe that relationship will continue to be extraordinarily strategic for us. We’ll just have to see how that develops.
Dell recently announced a round of layoffs – how is the company managing that and its impact on employees?
Sweet: These are hard decisions to make. We’ve seen this economic softening happening now for a number of quarters, so we’ve actually suspended most hiring back in the June timeframe and started reducing our spending.
But it’s clear we needed to do a bit more as we move through the year. And so, we stepped back and thought our way through areas that we needed to structure differently to be more productive, and make sure we’ve got resources allocated to the right market opportunity and the right areas of value creation.
That resulted in the determination that we would have a number of team members that we were not going to have a position for. These are never easy decisions, and we’ve been very respectful of team members that have been impacted. But I think it’s the right decision to move forward with as we think about positioning the company for long-term growth.
We’re also making sure we’ve been thoughtful about the cost envelope that we need to operate in this year, given what I think is going to be a challenging year from an economic cycle perspective. But I think the company continues to be well positioned for the future.
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