Dude, Its a Brand-New Dell

Dell Computer Corp. made its name and money by focusing on one thing: building low-cost PCs and servers using highly efficient manufacturing processes and selling the hardware directly to customers.

But over the past year, the computer maker has embarked on a new strategy that is pushing it into services, printers and PDAs (personal digital assistants). Chairman and CEO Michael Dell and company executives tout the initiatives as a natural evolution for Dell. However, enterprise customers and analysts say that to be successful with the new push, Dell must overcome several obstacles, including its reputation as just a PC maker; its increasing reliance on partners to provide technology; and the danger that, as it expands into new markets, the company could stretch itself too thin at the expense of its current user base.

While Dell may be gambling by attacking several new markets at once, the company has a distinct opportunity to gain ground against rivals that are struggling, notably Hewlett-Packard Co., which is still digesting its acquisition of Compaq Computer Corp. "Theres churn in Hewlett-Packards customer base because of uncertainty," said Russ Holt, vice president and general manager of Dells enterprise systems group. And analysts say if Dell can undercut HPs prices for printers, ink cartridges and PDAs, that will do further damage.

In interviews with eWeek editors at the companys headquarters here, Dell and his top executives contended that rather than representing a departure, the expansion plans are a natural part of the companys growth. For example, last year Dell began selling network switches, which it contends is a natural fit with sales of its servers. In just over a year, the company has shipped more than 1.8 million switch ports.

"Many network switching customers are server and PC customers. They really like having one phone number to call," said Kim Goodman, vice president of Dells networking business. Goodman asserted Dells approach to networking gear is the same as its traditional approach to PCs. "If its not fully standardized, were not likely to have a Dell product."

However, one Dell customer raised concerns the companys current users may suffer as the computer maker shifts its attentions to new markets. Brian Potts, network manager for Associated Food Stores Inc., in Salt Lake City, said hes already noticed a change in the service he receives from Dell since being persuaded to switch from Compaq hardware early this year.

"We got wooed by the sales A-team, but it seems like lately that we have been traded down to the B-team," Potts said, contending that his new Dell representatives are less knowledgeable and attentive than the ones he first dealt with.

While Dells plans to compete in new markets are still in their infancy, the companys actions have already drawn an aggressive response from industry leaders HP, in Palo Alto, Calif., and Cisco Systems Inc., in San Jose, Calif. Following Dells move into printers and networking hardware, HP and Cisco in recent months canceled their reseller agreements with the computer maker covering HP printers and supplies and Cisco networking devices.

And although in services, Dell retains partners Unisys Corp. and Getronics, the company will increasingly provide services to customers itself. For example, Dells services business has grown steadily over the last four years and accounts for about $3.5 billion of the more than $32 billion in annual revenues.

"We did 2,000 engagements in the last year," Dell said. He said the company over the summer acquired Plural Inc., a services provider specializing in Microsoft Corp. applications, and said the company is shopping for other small services providers to build out its portfolio of offerings.

Gary Cotshott, vice president of Dell services, said the services strategy is the same as ever for Dell. "Were trying to take cost out of the processes. Were not trying to be like IBM Global Services and [Electronic Data Systems Corp.]," Cotshott said. The idea is to offer flexible service packages, not custom-tailored solutions, he said. Still, he added, bigger things are in store: "We will carefully move up the food chain in professional services."