Its good to be king—at least for a quarter. Dell reclaimed the top spot from Hewlett-Packard last month for the lead in PC sales worldwide, according to figures from IDC (7.7 million units versus 6.4 million) and Gartner (7.5 million versus 6.3 million).
The Dell resurgence followed a quarter in which HP took the lead. Overall for last year, however, Dell barely edged HP in total PC sales (IDC: Dell, 25.8 million; HP, 25 million. Gartner: Dell, 25.3 million; HP, 24.2 million). The PC business is as close to a two-horse race as we have seen since the 2000 presidential election, and like presidential politics, the PC rivalry seems set to endure for the foreseeable future.
I doubt either company will be content to run neck and neck with the other, but at the same time, neither has a clear plan for growing unit sales of PCs that will leave the other a distant second. Chairman Michael Dell told financial analysts early last month that the company is on track for surpassing $60 billion in annual revenue by 2007 (last years revenues were $41.4 billion). Dell officials said the companys direct model and increased corporate IT spending will ensure that number is reached in just over three years.
Thats an ambitious goal, but there are two problems. One, Dells double-digit- growth forecasts may not be in line with reality. Second, how much more efficiency will the master of the direct model be able to squeeze out of its supply chain?
According to IDC Chief Research Officer John Gantz, who spoke in Boston recently, IT spending forecasts, which shot up last year, are growing more slowly this year and are expected to flatten out next year and in 2006 before declining again. Not a rosy picture, especially when coupled with other pressures facing CIOs. Are new PC systems going to significantly increase productivity? Is the money spent on new systems going to slow the development of other IT infrastructure projects that can save money?
Perhaps Dells other units will help lead the way to $60 billion, but much of the other sources of revenue—peripherals, servers, software and so on—depend on strong PC sales.
The company could have a few tricks up its sleeve, however. For one, Advanced Micro Devices CEO Hector de Ruiz thinks Dell is going to see the light inevitably and support AMDs Opteron processors. HP, IBM and Sun are already on board, and Dell is now the lone major vendor to shut out the 64-bit technology. "Dell will do what a great company always does," Ruiz said late last month on the first anniversary of the Opteron. "It listens to its customers. I believe Dell will be here when we have our two-year anniversary of Opteron."
That might be news to Dell, but it certainly makes sense. Not only would customers get more choice, but the competition between Intel and AMD for Dells business could drive down prices, thereby giving Dell better margins.
One of Dells other options is a return to its bread-and-butter operation. Dell is not really a technology innovator but a process innovator, and it has just about perfected the integrated supply chain model. Even if Dell can find more value there, if PC sales flatten or decline, where will the growth come from?
Dell could follow the road that it has so far traveled less—that is, grow through acquisitions. Dell could achieve its growth and fill out its services business by adding a big fish to its so-far-modest service and integrator acquisitions. Then there is the possibility of a major hardware company acquisition. EMC is already a partner and has been mentioned by observers in the past, although a merger has been strongly denied by Dell officials.
Dell would have to be careful not to copy the mistakes of Compaqs purchase of Digital Equipment, a move that slowed the company and made it ripe, in turn, for takeover by HP.
Whatever path it chooses, Dell and new CEO Kevin Rollins have their work cut out. The days of fast growth in the technology space are over. Tech is now a mature adult—even Steve Ballmer said Microsoft has grown up. Will Dell?
Scot Petersen can be reached at firstname.lastname@example.org