Dell Earnings Don't Tell Big Transformation Story - InformationWeek
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Dell Earnings Don't Tell Big Transformation Story

Two years ago, Dell talked up a transformational message--that fell flat, reinforcing its image as little more than a box pusher. Now it's clear that Dell has stayed the course.

Two years ago, Dell had PowerConnect switches. Meanwhile, HP's ProCurve and 3Com product lines began banging on Cisco's door. Just to confuse matters, Cisco was trying to break into the server business. While Cisco is still the player to beat in networking, it has suffered a few setbacks, opening the door for lower-cost players like HP and now Dell.

This past summer Dell acquired Force10, a strong secondary player in 10-Gigabit Ethernet switching, with about $200 million in revenue and 1,400 customers. Like it has done in storage, Dell plans to double Force10's workforce in the next year or so. Dell's networking VP and GM, Dario Zamarian, who left Cisco more than a year ago, admits that Force10 is simply a start, but he wouldn't let on what comes next.

Whether Dell grows its networking business through more acquisitions, internal development, partnerships, or some combination of those moves, Zamarian made it clear that Dell needs to offer Layer 4 and Layer 7 network services, citing security, load balancing, and overall orchestration as its areas of emphasis. If Darren Thomas's journey in storage is any guide, Michael Dell will be breaking out the checkbook often during the next few months. Dell must move fast here.

An upcoming InformationWeek report on data center convergence will reveal that Dell is in the conversation, at least as far as 10-Gig Ethernet goes, but more as a secondary provider than a primary one. In fact, despite Cisco’s recent financial struggles, it’s still entrenched in the minds of InformationWeek readers--95% of the respondents to our recent Data Center Convergence survey (these results will be available in December) say they’re looking at Cisco for 10-Gig Ethernet gear today and in 2012.

The best that can be said for Dell right now is that it’s well perceived as a low-cost networking provider. In separate InformationWeek survey that went a bit deeper into data center networking, evaluating the industry players across a broad range of evaluation criteria, Dell ranked fourth as a primary source of 10 Gigabit Ethernet gear, behind Cisco, HP and IBM. The good news for Dell is that companies are looking to reevaluate their network architectures, mainly to achieve operational and capital cost savings, our survey finds. (This survey will also be available in December.)

As Dell continues its march into the data center, it has also realized that simply being an equipment provider is hardly where the customer value is. The value is more in how it's all integrated, managed, virtualized, and simplified. And here, too, Dell has begun to make some noise, launching vStart, a virtualization broker of sorts, earlier this year.

Dell's Advanced Infrasctructure Manager (AIM), a workload mobility tool (this was part of Dell's Scalent acquisition), and Virtual Integrated System (VIS) Creator, a VM manager, combined with vStart, make up a system that can rightly be seen as private cloud management.

Dell's Changing Culture

There’s much more evidence that this is a new Dell. Dell plans to spend $1 billion on R&D this year. It has opened a new facility in San Jose, Calif., to house engineering across its various new acquisitions. In late 2007, the company made a strategic decision to use channel partners to help move its technology, a major move given Dell's long-standing direct sales model. In December 2007, Dell began with less than a dozen deal registrations (essentially an entry into the company's shared CRM tool), says channel chief Greg Davis. Now it processes somewhere north of 1,400 each week. It now has 100,000 channel partners worldwide, and it will run 140,000 training classes this year, almost double the number it did in 2010.

Dell is also aiming at certain industries--among them, retail, banking and securities, energy, manufacturing, telecom/media/entertainment and webtech--having appointed Paul D'arcy head of industries. Back to the idea of talking with customers about solving their problems than selling them data center gear.

While D'Arcy repeated his mantra that "our customers are asking" for this, the truth is that Dell has a long way to go. Michael Dell positioned the previous era as the Home Depot approach--"servers on aisle three, storage on aisle four." Today, Dell can offer a more holistic solution, pieced together in part with the services expertise it acquired in the Perot Systems deal--and even run it for its customers in its data centers worldwide.

It's a start, and perhaps it's as deep as Dell is capable of going. But Michael Dell noted that the company has very different people and skills than it did five years ago. There are 45,000 people in Dell's services business, all operating with what Michael Dell calls a "solution-oriented mindset."

Michael Dell says customer evolution matters more than technology evolution; some companies still want to simply buy a bunch of hardware. In fact, 28% of Dell's revenue comes from developing and other fast-growing markets, and their needs are far more foundational, he says.

One of the most fascinating changes at Dell seems to be a renewed sense of purpose. The message was the same during nearly every one of our executive interviews: providing standards-based solutions; giving customers choice; helping customers solve business problems. The sense of optimism and passion were also the same.

Enterprise strategy VP Praveen Asthana talked about Dell's need to be visionary but pragmatic, and Michael Dell latched onto those words to describe the need for Dell to simplify customer environments and constantly add value. Asthana, when asked about Dell's play in big data, replied that the bigger issue is achieving big insights, noting that 90% of data warehouses are smaller than 5 terabyes. Michael Dell talked about big decisions and big impact.

Naturally, Michael Dell is loathe to call this the post-PC era. Despite the popularity of smartphones and tablets, he doesn't see a day when we won't have computers. He sees no slowdown in growth (in Dell's earnings report, desktop PCs were down 6% in revenue, and notebooks were down 2%, but gross margins were up 20% year-over-year).

And surely now is Dell's opportunity to dominate that sector given HP’s recent waffling--first saying it would sell its PC business, then pulling back after Meg Whitman was named CEO. When asked if Dell is still benefiting from HP’s flip-flop, Michael Dell says: "The fact that you're even asking means it's probably true."

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User Rank: Apprentice
11/17/2011 | 8:30:55 AM
re: Dell Earnings Don't Tell Big Transformation Story
No one considers Dell a business "solutions" provider. People buy Dell for one reason and one reason only, cost. Technological innovation and an understanding of business requirements are not Dell's department.

There hasn't been much drama in the "transformation" because their acquisitions have all been really small companies that did not require any integration. I will say that they have done much better than HP with acquisitions, but that is a low bar. EqualLogic is a solid SMB iSCSI array. Force 10 is tiny, but they have good products. Dell should be targeting networking. Cisco is a massive target.
Kevin Raffay
Kevin Raffay,
User Rank: Apprentice
11/16/2011 | 10:25:34 PM
re: Dell Earnings Don't Tell Big Transformation Story
The new Dell Laptop looks like it may compete with the Apple Airbook, so this is a good start if Dell can comeback from the abyss.
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