eWEEK content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More.
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.
Dells 5 Point Plan
To help focus the company, Dell will pursue five specific areas in the three years: the global consumer market, enterprise businesses, notebooks, small and midsize businesses and the emerging markets.
In addition to IT services, Dell is also looking to delve deeper into the SMB part of its business. The company introduced a line of PCs in 2007 to address the needs of this market – Vostro – and more products are expected this year. While Michael Dell said the company does not expect its large enterprise business to grow as much this year as in the past, he said the opportunity to provide products and services to this part of the market are essential for the company to grow.
There are also plans for the company to become more engaged in both the emerging markets overseas and the consumer market both in the United States and abroad. The company now claims to have PCs in more than 10,000 retail stores worldwide.
Opportunity in a Transformed Data Center
These developments do not mean that Dell has any lessened its ambitions for the enterprise, especially the data center. In addition to IT services, Michael Dell said the company would compete with its storage portfolio, especially with the iSCSI storage technology it acquired through EqualLogic, its new blade line and by building facilities for cloud computing.
Michael Dell believes that virtualization embedded in the hardware itself, ISCSI storage and the use of 10 gigabit Ethernet with both servers and storage are all maturing at the same time and will transform the data center. In addition, Dell believes that EqualLogic will also give the company a way to sell more sophisticated storage products to SMBs.
On the acquisition front, Michael Dell told analysts “not to hold your breath for big acquisitions” from the company anytime soon. He did note that the company might pursue smaller buys to help bolster its different product lines.
“There are a number of network-effect acquisitions, where we can acquire a product line or a key methodology or a key group of skills that we can leverage across our entire network,” said Dell.