CEO Michael Dell: Being a Private Company 'Just Delightful'

 
 
By Jeffrey Burt  |  Posted 2013-12-13
 
 
 

CEO Michael Dell: Being a Private Company 'Just Delightful'


AUSTIN, Texas—It was a confident, upbeat and energized Michael Dell moving about the Dell World 2013 show here this week. Addressing the thousands of customers, partners, analysts and journalists as the chairman and CEO of his newly private company, Michael Dell sounded like a man relieved to be rid of the pressures of Wall Street and shareholder scrutiny and eager to get going on building a Dell that will be a competitive enterprise IT solutions and services provider. Throughout the day Dec. 12, he spoke often about being able to "accelerate our strategy," "make bold moves" and "focus 100 percent on the customer."

It wasn't easy getting to this point. Michael Dell announced in February that he and financial backer Silver Lake Partners wanted to take the almost $60 billion company private, but it took seven months of battling investors led by Carl Icahn for control of Dell—as well as bumping the price up to about $25 billion—before shareholders finally voted in favor of the deal. Now Michael Dell owns about three quarters of Dell, with Silver Lake owning the rest.

With the sale behind them, the CEO and other company executives continue to transform Dell from a PC maker to an IT solutions provider. At the show, the vendor started to clarify its cloud strategy; unveiled new storage, networking and software offerings; and put more money toward investing in both in-house development and up-and-coming technology companies.

During the show, Michael Dell sat down with eWEEK to talk about what going private will mean to his company and its customers, how he views Dell's role in the competitive cloud market and why PCs will remain an important part of the vendor's strategy.

You've talked a lot about what going private will mean for your company. What can corporate customers and service providers expect to see? How will it benefit them?

We can focus 100 percent on our customers so we don't have to focus on other things, shareholders, and that allows us to make bold decisions, invest for the long term. I think Dell World is a pretty good demonstration of the start to that in terms of the kind of things that we're doing. We innovate across a lot of spaces on behalf of our customers, and having the freedom to do that without this 89-day planning cycle is just delightful with a business with the scale of ours.

Customer reaction has been very positive, business has been up double digits since we went private, so customers are throwing orders our way at a rapid rate. We're really thrilled with the results.

When you talk about an end-to-end solutions strategy, that puts you in greater competition with HP, IBM, Oracle and Cisco. Some analysts have said these companies have a broader offering. Why should people choose Dell over any of those vendors? What is it that you can offer that these companies can't?

If you look at the last 30 years, we've been able to grow against those competitors because we've offered differentiated value and solutions that really matter, and we haven't had a legacy of things to protect. You think about the infrastructure space, where we're innovating in the data center and now we're extending that into software and services, we don't have mainframes or mini-computers to protect.

CEO Michael Dell: Being a Private Company 'Just Delightful'


About five or six years ago, we created something called the Mainframe Migration Factory. This was because we heard from a lot of customers, "Hey, I'm stuck on this mainframe. How do I get off?" It was like going to an Alcoholics Anonymous meeting. Like, "How long have you been on?" "Uh, 25 years. Can't get off." (laughs) "How long you been on?" "Twenty-four years. Can't get off." "Twenty-three years. Can't get off." So we said, "We've got to do something about this." "I'm Dave, and I've got a problem with the mainframe." That's literally what it was.

So we started one at a time converting them over. … It was complicated. Then we actually found some companies that had great tools that they had built up, and we started working with them, and we did more and more with them. We said, "These tools are great. Why don't we just buy these companies and accelerate this whole thing and turbo-charge it?" and that's what we've done.

Then you look at the enterprise portfolio. We're pushing the limits of x86 and scale-out and flat-tree networks and software-defined and how you really build the next-generation data center because we don't care about … distributed cores, and we can go and innovate and disrupt where others are trying to entrench and protect. That's a message that also resonates very well because [customers] saw us launch into the x86 space and save a lot of money and become a leader in that space. Now they're seeing it in software, in security and in all sorts of new spaces. That's the opportunity that we have.

Does being a private company give you any sort of advantage over the HPs and the IBMs and the Oracles?

Yeah, I think we can operate more aggressively, sort of attack in a disproportionate fashion. We're already seeing that in our growth. We said on Feb. 5, when we announced the transaction, we were going to be aggressive and gain share, and that's what we're doing. It's harder to do as a public company because you have to balance these short-term earnings. Listen to the conference calls of any of these companies, and you have these investors and analysts asking, "How come this?" or "How come that?" or "Blah, blah, blah …" No thank you. All done with that. (laughs) We don't need you guys. We're done.

This company has strong cash flow, great customer relationships and now has an investor that can invest with fortitude for the long term. That's a tremendous competitive advantage.

Today, with the announcement of your partnership with Red Hat [regarding OpenStack], you really started to stake out what Dell's all about in the cloud. Can you talk about the cloud and Dell's role in it and strategy for it?

"Cloud" is a bit like "Internet" in 1995. It means a lot of things to a lot of people, so we see lots going on in private cloud and companies working to move from virtualization to sort of "software-defined" and private cloud to capture some of the efficiencies of public cloud providers. There's a lot of that going on.

CEO Michael Dell: Being a Private Company 'Just Delightful'


There's also this whole rise of the public cloud and all kinds of varieties of that. And then challenges in how to I migrate, how do I transition, how do I secure, integrate and protect? So we're kind of helping our customers throughout that whole journey, whether it means, "Help me build out a Microsoft or VMware or OpenStack, Red Hat or Citrix private cloud," or, "Help me move to the private cloud. Help move some of my things to the public cloud and manage this somewhat difficult canvass of on-premises and off-premises things. How do I connect all this together? How do I secure it?"

This Cloud Partner Program is quite interesting. You look at the public cloud; it's a very crowded space. You've got tons of companies; every company is sort of rushing to that. We've been fortunate to sell equipment to, really, the vast majority of these guys. So a couple of clever guys from Dell said, "Why don't we partner with these guys and bring their services to our customers? That way we can sell the best of all public clouds to our customers and combine that with our private cloud, security, integration, consulting, migration services. The public cloud partners love it because we're bringing them new customers.

I sort of look at this and say, "Gee, you've got all the telcos running in, IBM, HP, Amazon, Rackspace, Google, AT&T, Verizon." … It's going to get pretty messy.

But there's no worry with you that maybe they're seeing something that you're not?

I think time will tell. What I can tell you is that it's not likely to be a space with 25 winners. I don't know what you're hearing about this, but clearly there's widespread adoption of some of the companies. Some of them have much more scale than others.

The other thing I'll say about this is that if you listen to some of the rhetoric, it takes on kind of a religious fervor—"We love this approach" or "We love that approach." What I see is that's a bit extreme. You have one customer that likes one type, one customer that likes another type, so we're helping our customers embrace the cloud that they want, in the way that they need. Maybe a public cloud, maybe a private cloud. We'll help them go to the cloud that's right for them.

Do your customers know what type of cloud they want or need? It's still a fairly new model.

It's a good question because it's also kind of confusing and ambiguous and cloudy, if you will. The pricing models are quite confusing, so helping the customers sort through all that is one of the roles that we play.

I'll give you an example. A customer came to us—the customer is in the oil-and-services business—they've got an innovative technology for drilling. They're growing super-fast. … They needed infrastructure very quickly in Europe, in Asia, in the U.S. We could just [say], "OK, here you go, we'll send it to you, we don't have time for that." [But] we said, "Well, how about, we'll use one of our cloud partners?" So we sold our equipment to our cloud partner, designed the solution, built the solution into the cloud partner, and we provided as a monthly service on—on Dell paper—to that company, who's now up and running all over the world. The partner's happy, the customer's happy, we're happy. Kaboom! There's your cloud. (laughs)

CEO Michael Dell: Being a Private Company 'Just Delightful'


You continue to say PCs are an important part of what you do. Why are PCs important, considering what's been happening in the industry?

First of all, there's this question of definition, right? What's a PC? Is a tablet a PC?

You seem to think along those lines, that a tablet is a PC.

Yeah, if you look at a lot of people with tablets, they have tablets with keyboards. A tablet with a keyboard feels a lot to me like a notebook. Of course, if I were to line up 10 products and say, "Which of these are a tablet and which one is a notebook?" you'd be hard-pressed to get everyone to agree on where the line is. … That's sort of the reality we're in.

Then there's 500 million of these things being sold. We're selling millions per week. For a dead business, that's pretty good. And it's growing, too. I think we're consolidating share. Certainly there are some guys that are losing share. We had very strong sales the last 45 days. We've introduced a ton of great new products—Latitude, Venue, our Precision workstation, Chromebooks. We're igniting all kinds of interesting things on the product line. We're big on virtual clients. It gives us scale, and it's a great way for us to introduce ourselves to new customers. We kind of take that relationship from client to server to storage, networking, services, software, systems management, security, vertical applications, financing and end-to-end [solutions].

It seems to be that in this area, being a private company gives you flexibility as far as pricing and as far as R&D.

Absolutely. You think about the suppliers in this industry. They know what we're capable of, and they've been incredibly supportive in getting behind us as we've gone to accelerate our growth.

When you're talking about mobile [at the show], you're not just talking about tablets; you're talking about the infrastructure that supports mobile, you're talking about security. What is Dell's strategy for mobile?

It's enterprise mobility management—how do you secure and protect your information wherever it resides, giving people on your team the freedom to use whatever device they want but do it in a secure way? Sometimes those are our devices, but not always. Certainly we're going after tablets in a big way. Tablet growth has been super-fast, but there's certainly tons of smartphones out there as well.

Acquisitions have been an important part of your strategy over the past five years. As a private company, what can we expect to see as far as acquisitions? Are more big ones on the way, or is this more a matter of smaller acquisitions to fill some holes you might have?

I don't think there are major areas where we are missing capability. Now you're seeing a lot of organic innovation, activating the almost 20,000 people we have in Dell developing the products, applications and technologies with this billion-plus R&D budget applied to all the challenges that we see from customers. We completed an acquisition right in the middle of [the effort to go private], Enstratius, which formed the basis of the Dell Cloud Manager.

We also announced this new venture fund [$300 million Strategic Innovation Venture Fund]. We don't have to acquire every company; we can also partner. We talked a lot about what we're doing with Microsoft, Oracle, VMware, Red Hat, Accenture, Dropbox. There's not a company on the planet that doesn't want to partner with us, given our reach and access to customers. It's a combination of organic investment, acquisitions, alliances, partnerships.

CEO Michael Dell: Being a Private Company 'Just Delightful'


You've talked about, as a private company, being able to be more aggressive in acquisitions.

Yeah, one of the things we talked about in the transaction was that, as a public company, we spent about $1.7 and $2 billion a year for the last three years in share repurchase and dividends and interest expense. As a private company, the share repurchase goes away because we bought them all back. (laughs) Done. Biggest share repurchase ever. Bought them all back. The dividends go away because we're not serving these public shareholders anymore. There is an interest expense, but that interest expense is far lower than the combined of the three averaged for the last three years. We actually have a better capital structure with more flexibility to go reinvest in our business, invest in R&D, add some sales and channel capacity, make acquisitions, do all the things we want to do.

You've got all these acquisitions. Now comes the need to integrate them. Can you talk about the integration effort that's ahead of you and the challenge it presents?

We introduced a product last year called VRTX, a very successful product. There's no way you could have done that product unless you'd acquired a bunch of core technology. That's actually an example of an architectural integration way beyond just patching things together. What you saw on stage with the Fluid Cache for SAN [an upcoming package of data center technologies that will deliver more than 5 million IOPs per second of random reads in PowerEdge servers], that is a deep integration of a lot of unique capabilities and acquisitions. In fact, there's an acquisition we made that we didn't even announce because it was so secret and it has this very, very cool [technology], tons of patents around this, that's actually essential to what we demonstrated on stage.

At least six or seven acquisitions that I can think of came together [for Fluid Cache for SAN]. … The other super-cool thing about that is that a customer that has PowerEdge servers or Compellent [storage products] can seamlessly upgrade from what they have to this, and it works with Oracle, it works with VMware, it works with OpenStack, Microsoft. It's pretty amazing stuff. And it sort of jumps right over the top of—don't want to mention it by name—any of those other storage companies because you can't put the data any closer than right inside the server.

So we've been doing that [integration] for quite some time. You look and see a common user interface across all these platforms. John Swainson [president of Dell Software] talked about bringing Foglight [performance monitoring and management software] to SaaS [software-as-a-service]. We have that up and running. Deep integration across networking, storage, servers, deep integration of our data protection with our storage platform. We have SecureWorks and SonicWall sharing signature data, so we have a network effect that's even greater. There are 2.5 million firewalls installed with SonicWall, which is pretty amazing. A lot of them in small and medium[-size] businesses but also in large [companies]. And then in SecureWorks, we have these [capabilities] protecting network security for all these really large organizations—some medium and small as well.

You put those signatures together, and we have the biggest signature footprint of what's really going on with security in the world. That's a big incentive for a company to work with us because we know more about what's going on than anybody. We've got a lot of that [integration] done. We can always do more, but it's not like we've been standing still.

Given your vision of what you want to do with this company, how far down the road are you? Are you halfway there? Three-quarters of the way there?

It's sort of a race that never ends. It's not like baseball. There are no innings. We just keep going.

But you must have an idea of a company that, if not completely done, is where you want it to be.

We have 2 percent of the $3 trillion IT industry. Nobody has like 5 or 6 percent, so it's an incredibly dispersed space. There are only 10 companies that have more than 1 percent, and we're one of the 10. We'd certainly like to go from 2 percent to 3 percent or 4 percent. I think the total pool [of the IT market] is going to grow, too.

As IT moves from the back office to being fundamental to sales and marketing, and then health care and education, and kind of every part of society, the pool's going to grow. The $3 trillion is going to grow to $4 trillion and $5 trillion, as small and medium businesses can take advantage of the cloud and things like that and get access to IT. If you go to a lot of companies and say, "Word association: IT. What's IT?" They'll say, "Printers and Microsoft Office." There's more to IT than that, so we can help empower these companies quite a bit more.

The dream for us is, how do we bring this power to the tens of millions of growing businesses out there? How do we do it without this legacy that's out there and enable the next generation of new businesses to get started and get going? You just think about all this information that we've been helping companies store and protect. How many of them actually use it to make better decisions in real time? The hard reality is, not really many. That's a huge opportunity. That unleashes all kinds of productive capacity.

We're not going to do it all by ourselves. No company does it all themselves. … I don't think that's necessarily the right answer. It's not what we hear from customers. They like that we work with Microsoft. They like it that we work with VMware, Red Hat and Oracle.

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