Cheap PCs just arent doing it for Dell anymore, some of its customers say.
Several Dell customers of varying sizes, informally polled by eWEEK, said that the PC makers low prices are no longer enough to effectively separate the Round Rock, Texas, PC maker from its PC rivals, such as Hewlett-Packard.
Dell has been going through a rough patch that has seen it miss its quarterly financial targets, issue a massive recall of 4.1 million notebook battery packs and disclose a probe by the U.S. Security Exchange Commission. The probe contributed to Dell pushing back the filing of its second-quarter earnings and postponing its Sept. 13 financial analyst meeting.
With all of this going on, the company seemingly cant afford to not respond to the concerns of medium and large corporations, which are customers that provide the bulk of Dells revenue.
Indeed, the company has pledged to plow hundreds of millions into improving its service and support, including rolling out its DellConnect troubleshooting software and announcing plans to offer Advanced Micro Devices processors in its servers and some desktops before the end of 2006.
The company, once an Intel-only operation, is likely to ultimately offer AMD processors across the board, even in corporate desktops, as it works to give customers more of what they want, analysts said.
“I think it does [need AMD in business PCs] just to be competitive,” said Richard Shim, an analyst with IDC in San Mateo, Calif. “This market is not that hard to figure out. The bottom line is [to offer] what the customer wants.”
To be sure, customers wants can be a moving target. Where direct sales and pricing have been suitable enough to win huge amounts of business for Dell—despite the first quarter 2006, Dell has grown worldwide shipments more quickly than the market rate, quarter after quarter—many others said that theyre now looking for more of a complete package that includes good prices along with solid service and technological innovation in things like management tools.
Some place more emphasis on technological diversity and innovation, while others focus on service and support. Although our poll was a small sample—the opinions are mirrored in reports from firms such as Technology Business Research—the increasingly restless customers intone the potential for more trouble, should Dell fail to react.
Dells top executives argue it is reacting to what customers want. Many of them, including Chairman Michael Dell and CEO Kevin Rollins, will be New York City on Sept. 12 at a meeting with press and analysts to reinforce that argument by discussing Dells latest efforts in products and services, including items such as its AMD-processor-based desktops and servers.
The meeting, which had been planned to happen in advance of Dells analyst meeting on Sept. 13, is likely to take on added importance due to the cancellation of the analyst meeting.
Dell on Sept. 11 said it had cancelled the meeting after pushing back the release of its final second fiscal quarter earnings statement, due to the SEC probe.
Dell is unable to file the report due to questions raised by the SEC as well as by its own independent investigation. Those investigations have indicated the potential of misstatements relating to accruals, reserves and other balance sheet items that may affect the companys previously reported financial results, Dell said in a statement.
Thus Dell executives are likely to focus on the companys work to improve customer service woes and react to customers demands with new types of products, including AMD-Athlon based desktops for both businesses and consumers and servers using AMDs Opteron processor.
However, customers who see low prices as a given, may ask for a lot more.
Among their desires include an increased emphasis on proactive customer support and product design as well as greater research and development efforts.
While Dell has said it would invest more in product design as part of its efforts to improve customer satisfaction, it has not spelled out its plans in public as of yet.
The Innovation Gap
“Dell really excelled commoditizing the basic stuff, making it cheaper and having a great service angle,” Lew Moorman, senior vice president of strategy and corporate development at Rackspace Managed Hosting in San Antonio, Texas.
“But I do think that now a lot of the big guys have gotten their cost structures in line and have continued to innovate” products and technologies.
Thus, he said, a gap in innovation has developed between Dell and companies such as Hewlett-Packard. Due to its work, HP can now mirror Dells prices much more closely, while offering more innovative management tools, he said, for example.
Other manufacturers, meanwhile, can offer even lower-priced, yet more basic gear.
Moorman said he sees potential for Dell to be caught somewhere in the middle with pricing thats no longer the lowest, and products and services that are less innovative technologically, should the company not make changes.
Moorman, who remains a Dell customer, lobbied the company to offer AMD-processor servers for some time—the AMD chips were much more power efficient than Intels until recently—before contracting with HP to buy HP AMD-based servers.
He said he still thinks Dell should be more responsive to customer requests. Rackspace, which maintains more than 17,000 servers now has fleets of Dell-Intel servers, HP-AMD servers as well as AMD-based white box servers, he said.
“We havent felt the pains of the customer service issue as much as others have. But Ive heard it a lot,” he said.
“The whole idea of the direct model is to listen [to customers]. To me [the Dell-AMD announcement] just happened so late in the game…it made me question a little bit, are they really listening to the customer?”
Even if Dell were to retain the low-price crown, that might not sell as well as it once did, said Tom Miller, senior director of IT at FoxHollow Technologies in Redwood City, Calif.
Instead, service and support—the more proactive, the better—are more the key to companies, said Miller, who manages hundreds of Dell desktops, notebooks and servers.
“Dell does a good job on pricing. It treats the [small and medium business] market very well from a pricing standpoint,” he said.
“But when you go beyond pricing, what else is there? [Dell is] sort of a me-too company when it comes to innovation of technology and when it comes to value added services,” Miller said.
“I want to see a more proactive effort from Dell. I want them to go above and beyond what they provide now from a support perspective.”
To be sure, Miller says he has a good relationship with his Dell account team. But that doesnt mean he wouldnt like a tighter relationship with the PC maker, involving more exchanges of information.
The type of communication Miller would like to see, he said, includes proactive alerts on trends uncovered by its technical support group on issues that might affect Millers IT operations, he said.
Miller also found Dells SEC probe worrisome, he said.
“Are they getting defocused as a company?” he asked. “What Id like to know is Michael Dell doing something—Bill Gates stepped back in when Microsoft was threatened by the Internet, whos doing that, right now, at Dell?”
However, not all of Dells customers are necessarily looking for more.
“Of all the machines weve purchased in the last several years, Ive had very little issues,” said Anthony Kolasny, systems manager at Johns Hopkins Universitys Center for Imaging Science in Baltimore, Md.
The lab uses high-end desktops as well as a Dell server-based high-performance computing cluster for jobs such as medical imaging.
“When I get new machines in here, everything works right out of the box,” Kolasny said. “Dell has been very supportive. Ive been able to call them up and, within that day, get a technical support rep who could talk me through the issue Im having.”