Dell Services, SMB at the Head of New Strategy

Dell plans to challenge rivals HP and IBM in the services arena but expects most of the opportunity to be at the lower end of the market.

Michael Dell is shedding the cloak of a low-cost box maker.

At a meeting April 3 with Wall Street analysts at Dell's Round Rock, Texas, headquarters, CEO Michael Dell said that the company will grow its enterprise services business while focusing more on SMBs (small and midsized businesses) and the consumer market.

In three years, Michael Dell said there will be a $2.1 trillion global market for IT services and the company is eager to grow this side of its business. During its 2008 fiscal year, Dell collected $5.3 billion in revenue from services - a 9 percent increase from the previous year - and it's one part of the company that Michael Dell and his management team plan to focus on this year.

"For every one dollar that companies spend on hardware, they will spend two dollars on services," Dell told analysts at Thursday's gathering.

The desire to move further into the services business will put the company directly in competition with both Hewlett-Packard and IBM, which both have well established and financed services divisions.

Growing by Shrinking

The news of Dell's interest in the IT services business comes at the end of a string of announcements this week that have focused on how the company plans to streamline its operations, grow its profits and cut about $3 billion in costs in the next three years.

Dell is also looking to trim its headcount by nearly 9,000 positions - the company will close its Austin desktop manufacturing plant - and Michael Dell told analyst on Thursday that that the company might cut even more jobs than it had previously stated. He added that "everything is being looked at."

Don Carty, Dell's chief financial officer, said the company grew it work force in anticipation of growth that never materialized. Right now, the company has more than 82,000 employees worldwide.

The company also announced that it would outsource more of its manufacturing to ODMs (original design manufacturers) to help cut cost.