Q & A :MICHEAL DELL

[Anonymous]

Q&A: Michael Dell
Market leader Dell Unfazed by PC industry consolidation

The PC industry is set for Major change after IBM sold its business to Chinese manufacturer Lenovo.

But market leader Dell is unperturbed. Last week, the company cut prices for its servers, notebooks and desktops in the UK by up to 36 per cent.

Computing spoke to founder and chairman Michael Dell during Oracle’s OpenWorld user conference last month, just as the IBM deal was announced.

Were you surprised that IBM sold off its PC business?

It’s hard not to be pleased, being Dell. But you shouldn’t be surprised to see IBM selling off its PC business: it was losing market share and was not a priority.

Dell continues to gain market share from its main competitors across product lines and markets.

Were you interested in buying IBM’s PC business?

We would like to acquire customers just as, over the last few years, our market share has grown quite dramatically. But we don’t think we have to acquire the whole company.

But I would agree with Gartner’s general sentiment that there will be consolidation in the market.

Can you identify which companies you think will be affected by this consolidation?

Not really. But it would be easy to characterise the companies that would be affected. Chances are they are unprofitable.

There’s a pretty good chance they’re not growing and that the PC business is not a major strategic thrust of the company.

Will you continue to focus on business products or will you shift any more resources to the consumer products side of your business?

About 85 per cent of our business comes from enterprises and about 15 per cent comes from consumers. In Europe it might be closer to 90 per cent business and 10 per cent consumer.

Within that 10 per cent there are a number of things that go along with our computing devices. But don’t be distracted by small shiny objects. That’s not the strategic thrust of the company.

It turns out that the 90 per cent is growing faster than the 10 per cent. Will that 10 per cent become 20 per cent anytime soon? I don’t think so. The reason is that about 82 per cent of all money spent on IT is spent by business and government institutions.

How do you feel about progress in the printer and imaging market?

We have been pleasantly surprised by the very strong growth, particularly in the colour laser market. Some of our products are priced at roughly half the price-performance of some rivals and ink and toner is about half the price again.

So when you have that kind of price difference and great technology from the likes of Fuji and Xerox brands, you’re getting great value.

We’re selling everything from the networked laser printers to the consumer desktop printer to the small office, all-in-one inkjet. And this year we will sell five million printers. It’s grown very rapidly for us and, next year again, we think will be another very strong year for printers.

We’re selling the full range of printer products and, I think, changing the value equation for this market. If you look at the speed we have grown from nothing to five million units it’s a real hot topic. In the US we already have about 20 per cent of the all-in-one market, so it is growing quite rapidly.

Some resellers in Europe have been buying Dell products and selling them on. Is your direct sales model breaking down in this region?

What you have is a situation where I can call Dell and buy Dell for less than I can buy HP. So, as a reseller, I’m going to buy Dell, put some solutions or services on it and provide it to my customers. That’s fine. But are they resellers?

A traditional reseller was someone who would make a mark-up on selling on a box. What we’re seeing is really more about guys who are providing a service. I mean, you would have to be hiding under a really big rock not to know what our prices are. And we had 300 million visitors last year to Dell.com – our pricing is totally transparent.

So if someone wants to go and buy two Dell computers, put some software on them and sell them to an office, we’re not going to say: ‘No you can’t do that’. But we’re not actively courting discounters. Take the UK for example, Dell is a leading brand, so it shouldn’t surprise you that these guys are taking our products to do this.

Dell recently won a major IT services deal with Phillips. How important is this market to your future?

Phillips is not the first customer that we have provided services for. We’ve done work for Cable & Wireless, AXA, Boeing, Ford and JP Morgan.

But I would really call it ‘out-tasking’ or ‘point-sourcing’, by taking over a specific activity. We do it in combination with partners, but also with our own services people.

We have about 10,000 to 11,000 people in our services division who do managed services, professional services and training, and it is growing quite rapidly.

One of the things we can do is take a storage area network (SAN), for example. It used to be that, if you wanted to install or assign a SAN, it was an eight-day task and it could cost considerable amounts of money with billable hours.

We’ve been able to do this using a lot of the same techniques we use in our manufacturing process to automate and standardise the process. We take that eight-day project and halve it and cut the cost by about 60 to 70 per cent.

So, a lot of these are fixed-fee services where we either come in and do a Microsoft Exchange Active Directory implementation or an Oracle database migration or tuning or health check and these type of services are growing very rapidly.

There’s been this notion that you can’t standardise services. But it’s another example of Dell changing the rules of the game, with plenty of scepticism to go along with it. There was plenty of scepticism when Dell went into servers or workstations or printing or services.

For every dollar spent on products, there’s about three dollars spent on services.

How far do your ambitions in this market extend?

We’re not going after that entire suite. We’re going after the kind of services I’ve already mentioned and there’s a lot of room for us to grow there. So that’s probably the best way to characterise what we’re doing.

We’re very customer driven. Managed services are really an outgrowth of the relationships that we have with companies such as Boeing where they say: ‘If you’re doing this for us you can now do these other traditional, mission-critical services too’.

We’ll be responsive to our customers and help them save money. We don’t believe in sending in a bunch of guys who’ll bill you by the hour and stay there until all your money’s gone. We believe there’s a better way to do services.

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January 21, 2005 at 10:29 AM