Dell is beginning to show gains in its efforts to move away from a contracting PC market and become more of an enterprise solutions provider, a transformation that Dell executives hope to accelerate with their $24.4 billion plan to take the company private.
The world’s third-largest PC maker saw revenues fall 11 percent in the company’s fiscal fourth quarter—to $14.1 billion—over the same period in 2011. Profits during the three months also declined 31 percent, to $530 million.
However, the revenue numbers still exceeded analyst estimates, and while some business units showed expected decline—desktop PC revenues fell 14 percent, mobility revenues, including notebooks, declined 25 percent, and the consumer business saw revenues drop by 24 percent—there were notable gains in areas that Dell is actively courting.
In particular, Dell’s server and networking sales ramped up 18 percent over the same period in 2011, hitting $2.62 billion, the company said Feb. 19. Revenues connected to Dell’s Force10 Network business—the company bought Force10 in 2011—grew 100 percent, according to Brian Gladden, Dell’s senior vice president and chief financial officer.
Individually, server revenue grew 5 percent, and the company’s 12th-generation PowerEdge servers now account for 80 percent of all PowerEdge systems being sold. Gladden said the company is seeing particular strength in hyperscale data center environments. Dell’s networking business saw sales rise 42 percent, and the company’s Quest software unit exceeded its revenue target of $180 million to $200 million.
All of this is encouraging news for executives at Dell—including founder and CEO Michael Dell—who have invested more than $12 billion in buying almost 20 companies in their effort to transform the company into an end-to-end enterprise IT solutions provider, spanning servers, storage, networking, software and services.
Dell has been pushing the transformation since Michael Dell returned to the CEO seat in 2007. With the PC market continue to slump, Dell and other tech vendors with tight ties to that space—including Intel, Advanced Micro Devices and Hewlett-Packard—are looking for ways to expand into growth areas and reduce their dependency on PCs.
For Dell, the new focus on enterprise IT solutions will enable it to sell products with much higher margins, and the company will be able to leverage PCs as an avenue into enterprises, where it can grow its solutions revenues. However, it also puts them in even tighter competition with the likes of HP, IBM and Cisco Systems, off of which also have greater data center aspirations, and many—like IBM—have a significant head start.
“The PC is adopting supporting role for Dell but remains the cornerstone of the company’s relationships with its channel and customers,” Krista Macomber, an analyst with Technology Business Research, said in a Feb. 19 research note. “Dell needs to continue to deliver PCs to its partners and customers, building on these relationships to grow its solutions business, but does not need to grow its PC business faster than the market. The company can and will tolerate negative growth in PCs as long as it is preserving its position in SMB and enterprise workspaces.”