The low-cost PC maker expects to become a major business-technology provider. With business forces in its favor, and a compelling technology strategy, don't bet against it.
Kevin Rollins has a vision. "We're very encouraged about the potential for Dell to grow into a broadly based and broadly acknowledged IT company," Rollins says about the computer vendor he now helms, having taken over as CEO from legendary founder Michael Dell less than a year ago. "We think of it like our manifest destiny."
Dell has been knocking on the doors of corporate America for a long time, winning converts to its low-cost, high-quality business model, first at the grassroots PC level, then in servers, more recently with storage and networking products. And while Dell's corporate ambitions are well known, and its strategy to win mindshare and market share are basically unchanged, its current game plan, which includes a growing emphasis on technology services as well as a strong push into imaging and printing products, will let it reach further into the corporate environment. That, and overall business forces gathering steam for the past several years, such as cost cutting, standardization, and optimization, are positioning Dell as a central force in business technology.
As Dell becomes a bigger player, its influence increases, CEO Kevin Rollins says.
Photo by Matthew Mahon
In an industry characterized by shaky finances, Dell's numbers are impressive. Two years ago, the company set a goal of doubling revenue, from $30 billion to $60 billion, in five years. When its revenue for fiscal 2005 is reported later this month, the company is expected to have hit nearly $50 billion, about a year ahead of schedule.
Despite attempts to diversify its product line, PCs still represent the majority of Dell's revenue, about 79% if you include laptops, compared with 21% for servers and other enterprise products. Last year, Dell was the largest provider of PCs worldwide, with 18% market share, according to research firm IDC, slightly ahead of Hewlett-Packard, at 16%. Also, Dell recorded 23% unit growth worldwide over 2003. Domestically, Dell had 33% of the PC market last year, while HP, its closest competitor, had 20%.
Helping Dell's business is the fact that companies, despite budget constraints, continue to refresh their desktop PCs. "You can see those budgets freeing up more," says Steve Felice, VP of Dell's corporate business group.
With IBM selling off its PC business to Chinese manufacturer Lenovo Group Ltd., CEO Rollins believes Dell is primed to dominate the market. "In some of the business units in the United States, we're already closer to 40% to 50% market share, so that tells us it's possible worldwide," Rollins says. Dell sees future growth outside PCs, too. "We want to see our servers, storage, printers, and services business share as high as our PC market share," Rollins says. "You add all those things up, and the notion of a $60 billion to $80 billion company is pretty simple to get to."
Dell's business model from day one has been to enter high-volume, expanding markets with low-cost, standard technology offerings. Standard technology for Dell equates to ubiquitous commodity products, such as Intel processors, the Windows operating system, and, to a lesser--but growing--degree, Linux. "That's what we do," Rollins says. "Dabbling in little, small, nichey pieces of business is really not where we add value."
That philosophy is very apparent in Dell's approach to the server market. Although the company at one time offered an eight-processor server, today its largest configuration is four processors, with the bulk of its effort concentrated in two-way designs. In lieu of raw horsepower, Dell instead preaches a "scale-out" strategy for companies to run their most demanding data-center applications. The scale-out model means companies add smaller, less expensive one-way, two-way, and four-way servers and cluster them together to achieve greater and greater computing power, as opposed to purchasing pricey 16- and 32-way systems.
This may be where Dell most often bumps up against current computing reality. There aren't a lot of companies that run their business-critical applications on small Intel-based servers. Still, the scale-out strategy makes sense for a significant portion of IT workloads, says one industry analyst. "There are probably only 10% to 20% of applications out there that really require a mainframe or RISC-based solution," says IDC's John Humphreys.
When Recall Corp., a $600 million-a-year data-management services company, upgraded its computing infrastructure last year, company officials didn't see Dell as the complete answer, especially in terms of its critical data-storage needs. But after Dell was able to convince Recall that its storage systems, in partnership with EMC Corp., could handle the 14 terabytes Recall required, the rest fell into place, CIO Brian Beard says. "If you look back two or three years, Dell might have been a company you'd build your PC strategy around, but generally they didn't provide the breadth of architecture and hardware to do everything needed for a typical midsized or large organization," Beard says.
Today, Recall has standardized on Dell equipment, including one- and two-way servers on the front end of its computing infrastructure, clustered four-way systems in its three data centers, Dell storage area networks, and desktop and notebook PCs. Recall also tapped Dell's services division to complete the backup, configuration, and recovery chores for its SANs.
It was Dell's relationship with EMC that swayed Tribune Co. to choose Dell/EMC storage over Hitachi. Dell "helped drive that pricing down," says Darko Dejanovic, VP and chief technology officer at the media company. "And Dell reassured us that we were going to get the service and responsiveness that we needed." Tribune is a big user of Dell PCs and servers but hasn't jumped into Dell with both feet. Sun Microsystems servers still power Tribune's CPU-intensive applications.
One way Dell intends to expand its corporate presence is by aggressively marketing IT services where it can apply its low-cost, standards-based, efficiencies-of-scale approach. The company offers services such as help-desk support, asset management, installation, deployment, and asset recovery. Just last week, it introduced a service called Weekend Notebook Exchange that lets companies ship their old notebooks to Dell by Friday and have data transferred, software installed, and new systems shipped ("in most cases," according to the company) on Monday. And later this month, Dell will introduce a service to help companies handle the cooling problems associated with blade servers.
Such services are having an impact on Dell's top line. In fiscal 2005, which ended last week, the company had a total of about $4 billion in services revenue, VP Felice says. The services business has been built up mostly in the past two years, enabled in part by the increasing use in data-center environments of Intel-based systems running Windows or Linux.
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