Dell is going to continue moving away from its PC roots and deeper into
bigger—and higher-margin—areas, particularly services and the data centers of
large enterprises.
At Dell's annual analyst day in Austin, Texas,
on July 14, CEO Michael Dell and other
executives talked about their desire to change the company's product mix to
move away from the client business, grow in emerging markets and become more of
an innovator in the data center.
Both Dell and Chief Financial Officer Brian Gladden said continuing to rely
so heavily on low-margin PCs in the revenue mix would be difficult. Moving
upstream makes more financial sense, and is where the industry is going, Dell
and Gladden said.
The executives gave a big-picture look at Dell's overall plans, but declined
to fill in many details. They said the company would move away from point
products and instead would work to offer enterprises solutions that can
encapsulate everything from data center hardware to software to services.
They also said the growth in these areas would come from a mix of
acquisitions—such as the company's 2007 purchase of storage vendor EqualLogic—partnerships
and organic growth. During a question-and-answer session, Dell declined to
speculate about what companies might be targets of his interest, saying only
that such deals take time, and need an interested seller as well as a buyer.
However, he said the acquisitions would be strategic, and suggested that
there wouldn't be any large-scale purchases.
Dell said his company already has a strong enterprise business, at about
$14.5 billion in revenue, which comprises servers, services and storage.
Such technology transitions as virtualization, green IT, 10 Gigabit
Ethernet, mobility and cloud computing continue to fuel new trends in the data
center, and Dell said his company's latest
generation of PowerEdge servers are optimized to take advantage of them.
Dell's aggressive push deeper into the data center with a solutions-based
approach will put it in tighter competition with the likes of Cisco Systems,
Hewlett-Packard, IBM and—after its expected
purchase of Sun Microsystems—Oracle. However, Dell said his company would not
roll out an
all-in-one data center offering, as Cisco is doing with its UCS (Unified
Computing System) or HP with its BladeSystem
Matrix, both of which house the hardware, storage, management software and
networking in a single offering. There isn't a demand for those types of
offerings among enterprises, he said.
"I just think the hype has run too far for that," Dell said,
adding that he has seen the large data centers of such companies as Microsoft
and Facebook. "When we go into these data centers, there's no proprietary
stack at all."
During the Q&A sessions, analysts said they essentially understood where
the company was aiming, but were unclear on how the company would achieve its
goals.
A key question was how Dell was going to be able to break free of its
reliance on PCs, which still constitute more than half of the company's
revenues. Analysts also asked how Dell would keep its server revenues from
taking a hit if it continues to push virtualization.
Stephen Schuckenbrock, president of Dell's Large Enterprise business, said
while virtualization has been talked about for most of the decade, only about
15 percent of servers have been virtualized. Once server virtualization starts
gaining momentum, there will be a threat to hardware sales, but that is offset
by the other virtualization-based areas that Dell can take advantage of,
Schuckenbrock said.
Dell and Gladden both talked about an expected rise in hardware refreshes in
2010, as the global recession has forced enterprises to delay new purchases.
Businesses have extended the life cycles of their hardware by more than a year,
which should lead to pent-up demand to refresh.
Dell said he expected that storage and servers would be refreshed first,
followed by PCs.
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