I had the excellent fortune to attend Dell’s 5th annual Dell Annual Analyst Conference (DAAC) forum last week to hear from Michael and his team about the company’s latest achievements. I’m following Dell more closely than ever now, reviewing its actions and strategy in a turbulent market. You’ll want to learn more about how it’s positioned to take advantage of future opportunities.
Big change coming – focus on your customers
Michael spends a lot of the time he saves in not having to address shareholder issues in meeting with customers. As a private company Dell is now in ‘a fantastic position to be 100% focused on the dreams and business outcomes’ of its clients, something it refers to as ‘future-ready’. It is also able to make long-term investments at a time when many similar suppliers are changing their organisation strategies. In the past IT was about driving productivity, which is still necessary, but no longer a sufficient role. In this evolving world businesses need to use IT to reinvent themselves, taking advantage of 40 and 60 times lower bandwidth and processing costs over a few years. In the future there will be a ‘digital economy’ of 100B connected devices: there are huge opportunities, we’re ‘at the edge of huge possibilities’. Part of the transformation will be in Application Programmable Interfaces (APIs) – ‘lots of companies are publishing them in order to connect everything, we’re heading towards an ‘API economy’, Michael indicated. Looking back at ourselves in 5 years’ time he thinks the market we study today will look like ancient history.
As in past meetings Michael used his company’s 5 mantras of ‘Transform, Connect, Inform and Protect’ to illustrate Dell’s latest developments. He tantalised those of use trying to estimate its business by announcing that its total revenues over 31 years have been $880B. That’s $100B more than the figure he announced at Dell World in December 2013, which fits well with my estimate of the amount it’s made in the 6 quarters since privatisation. For the record – I believe it had revenues of $60B in its last financial year ending in January 2014.
To Sweet (CFO) talked about the company’s financial goals, which are to grow gross margin and operating dollars in a very disciplined way. He noted that revenues in the last financial year grew by ‘mid single digits’, allowing it to pay off $3.4B of its debt. The company is in the process of hiring 1k new ‘sales makers’ and is focusing on its top 10 countries (of which the US is top and China second). As well as expanding its channel coverage through investments in programs and incentives, it has also introduced Dell Financial Services to new countries, expanding on its entry into Europe 2 years ago and Mexico last.
How’s Dell doing?
I’ve included my latest market shares for the year to the end of March 2015 in the Figure above. This is how it has performed:
- Servers – it was second to HP with an 18% share from $10.7B revenues. Marius Haas (head of Enterprise Solutions) note that Dell was only 20k shipments behind HP in server sales in the last quarter. The distance to IBM in third has increased due to the offloading of System x to Lenovo. While its eyes will be on exploiting any disruption cause by HP’s split this year, it will face increasing challenges from Lenovo, Huawei, Inspur and Sugon in China, where it currently has a very strong presence.
- PCs – it was third to HP and Lenovo with a 17% share from $27.7B revenues. It claims to have gained market share for 9 quarters in succession. However I believe Lenovo has been the best performing PC vendor over recent quarters due to its acquisitions. Jeff Clarke (head of Dell’s Client business) said that its total installed base over time is an astonishing 1.8B, with 600m shipped 4 or more years ago.
- Storage – Dell claims to ship more storage capacity than any other system supplier and to be Seagate’s biggest customer. I place it in 6th position with a 5% share from $1.5B. Unlike some other larger array suppliers Dell is not trying to protect high-margin business. It has a number of ‘software defined’ offerings, including a successful relationship with Nutanix for its hyperconverged offering.
- Enterprise Network – Dell is only a minor player here with a 1% share – I place it in 12th position. The market is of course dominated by Cisco. As in the storage area Dell has an open and ‘software defined’ approach to networking.
Dell has also been making progress in software – especially in its end-to-end security offerings, while its extension of Pro Support Enterprise has created new revenues from PCs and Enterprise products. It also reports a major growth in channel sales, which now account for 40% of its revenues – up from less than 15% in 2008.
Table 1 – IT market shares ($US current) – year to March 2014 and 2015
|<Q1 2014||Share %||<Q1 2015||Share %||Growth %|
Note: including OEM business
Source: ITCandor, 2015
Quite apart from the disruption caused by organisational change Dell’s competitors have been doing less well in the last year. In fact in terms of organic growth it has done better than all other major vendors apart from Apple: Microsoft and Lenovo’s growth was largely due to acquisitions of course.
Some Conclusions – no offloads or corporate splits here
Dell’s privatisation is protecting it from the machinations of the stock market – it needs to pay back its debt on target, but won’t have to split its business like HP or offload divisions like IBM. Its Healthcare and traditional services as well as its consumer products are currently quite US-centric, but the rest of its portfolio is very global. This combination of PCs, servers, storage, networking, software and services is unique, giving it scale economies in component sourcing and – more importantly – the ability to supply most of the hardware and much of the software tools and services business customers want. It’s focusing on customer acquisition in 2015 – a process helped by strong investments in its channel programs. Dell Financial services – the ‘bank of Dell’ – is also helping it grow its business with SMB customers and others who find access to capital finance problematic.
Dell’s challenges will come from new Chinese suppliers, who will be keen to challenge its success in their home country and globally as they expand their business aspirations to make up for retreating US-based system vendors. It may also come from the growth of the Internet of Things (IoT) – if Michael is right in forecasting the digital and API ‘economies’, Dell will need to learn new ways of engaging with users and building solutions. As for now, its focus on customers is helping it out-perform most of its traditional competitors.