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It's A New Dell

Michael Dell talks customer outcomes, not infrastructure, as he sits down with InformationWeek editors--but he's got plenty of PC fight left in him.
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Michael Dell practically bounds into a small conference room at Dell headquarters, all smiles after a day of meeting with customers in a nearby solutions center, his shirt unbuttoned one past comfortable. Five or six InformationWeek editors, having met with some of Dell's leadership team for six straight hours, are fading, but he's just getting warmed up.

"It's a new Dell," he says emphatically.

Consider that Dell has acquired nine companies and added 11,000 employees in the past year alone, he says. (As my colleague Mike Fratto notes, that reflects Dell's focus.) Over the past five years, with the founder at the helm once again, the company has moved aggressively into storage, networking, and IT services and modified its almost religious commitment to direct sales to include thousands of channel partners--all while maintaining a No. 1 or No. 2 position in its core server and PC markets.

The last four quarters have seen earnings per share grow 83%, he emphasizes. On Nov. 15, five days after we visited Dell, the company announced that its third-quarter operating income, earnings per share, and gross margins were all up compared with a year ago, even if its revenue was flat. That's OK, Dell says. The company is emphasizing higher-value deals.

[ See our in-depth analysis, Dell's Earnings Don't Tell Big Transformation Story. ]

If most customers only view Dell as selling the IT infrastructure that underpins their operations, the CEO wants it to be known that it's also helping them "drive outcomes." For instance, earlier in the day of our interview, Dell had met with a large healthcare customer. "We're running their electronic health records system, we're running their hospital information system, we're running their evidence-based medicine system, we're helping them with claims, we're helping them modernize their applications, we're helping them with their mobile clinical computing strategy, we're helping them with security...all the things that drive outcomes for their patients," he says, without a mention of PCs, servers, and storage.

Dell knows that this sort of transition from tactical supplier to strategic partner doesn't happen overnight. Just competing in software (storage management, virtualization, deduplication) and services (cloud, integration, consulting) is a "huge change," he says. "That's not to say we're done, or that we're a leading company in all of those spaces, but we're there and we're competing."

For instance, on the third-quarter earnings call, Dell executives emphasized the company's growth in enterprise solutions and services (up 8% year-over-year, now accounting for 46% of the company's gross margin). Server and networking revenue rose 13%, and while storage revenue fell 15%, when isolating Dell storage IP, where the company has placed heavy emphasis, that revenue was up 20%.

To drive home his point about the company becoming a higher-level competitor, Michael Dell talks about big data (or as he and his fellow execs like to call it: big insights, big impact, big decisions), citing companies with 10,000 or fewer employees as an enormous opportunity. Dell's biggest competitors--Hewlett-Packard, IBM, EMC, Cisco, even Oracle--have big data solutions; Dell sells servers and storage, though it recently announced a Hadoop appliance. Dell may be getting ahead of itself here, even if its storage technology underpins how big data is delivered. Going from technology to solutions, even for a $60 billion company like Dell, isn't trivial. "You don't do it with the same people and skills," the CEO says, pointing to the 45,000 employees now in Dell's services division, in part from its $3.9 billion acquisition of Perot Systems in 2009.

Michael Dell is realistic enough to know where his company's bread is buttered, especially in emerging markets. "If you go to a tier 4 city in China and you say, 'Hey, do any of you guys want to buy a smarter planet?' they'll say, 'What the heck are you talking about,'" he says with a sneaky grin. His point: Those people need basic computing.

When asked whether HP's recent flip-flop on its commitment to the end-user device business had spread enough uncertainty to create a big opportunity for Dell, he responds: "Just the fact that you asked the question...the answer is yes."

Dell is combative when discussing the notion of a post-PC era, arguing that the PC will remain the main consumer and business computing device, even with the explosive growth of smartphones and tablets. He made it clear that Dell plans to stay in the business of making PCs. "If you go out into the future 10 years ... maybe you talk to your computer, maybe it's a hologram, maybe it's blasted on your retina, who knows," Dell says. "But there's gonna be one. There could be more than one of them, there could be tiny little ones that you carry with you, there could be bigger ones with bigger screens."

He adds: "Those devices are fundamental to how this company operates and does what it does."

There may indeed be a new Dell, but there's still plenty of the old Dell.

Fritz Nelson is the editorial director for InformationWeek and the Executive Producer of TechWebTV. Fritz writes about startups and established companies alike, but likes to exploit multiple forms of media into his writing.

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