CRN Q&A: Michael Dell's Take On HP, The Channel and Dell's Future12:20 PM EST Wed. Aug. 24, 2011
Dell Chairman and CEO Michael Dell built a PC powerhouse by selling direct, first from his University of Texas dorm room and later from a sprawling campus of his own in Austin. Two years ago he turned to the channel and has since built a $62 billion technology powerhouse with products from the desktop to the data center.
Now he says he is focused on his partner base and in an exclusive interview with CRN, he declared “Dell is now the clear-cut computer maker of choice for the channel.”
Dell spoke with CRN Editor News Steven Burke about his company's channel progress and rival HP's decision to explore strategic alternatives for the HP Personal Systems Group (PSG) business, including a "full or partial separation of PSG from HP through a spin off or other transaction."
He and his company are making an aggressive push to lure HP partners that are concerned about the future of PSG and HP's PC business. Dell himself wrote a Twitter post Tuesday night: "We love the Channel! Are you a channel partner that has not joined us already? It's never been easier to sign up!" The Tweet included a link to the Dell Partner Direct Web site.
Below are excerpts from the exclusive CRN interview with Dell.
What kind of reaction you have seen from partners in the wake of the HP PC news?
We have had great response from partners and tremendous interest from existing partners and potential new ones around the world since the news.
Look at Dell. We are here to stay. We are committed. If you look at this whole x86 space, we are the x86 partner of choice. There is no other company that has a complete x86 portfolio.
Talk about Dell's channel progress.
We have been growing very, very steadily with strong double digit growth. It's a very significant business heading rapidly towards a third or more of our revenues. I think the reason it has been growing steadily is we have been very consistent in our approach.
It's a straightforward program. Partners love it. We haven't back-tracked. We haven't changed the rules. We have neutralized the comp so that our own teams readily partner with our channel all the time, business as usual. We have acquired companies that are channel driven. We have large numbers of channel-savvy people in the company now. We said what we were going to do. We did what we said we were going to do. We did it again. We just keeping doing it. I think this is a great opportunity for partners that haven't signed up with us to come on in and join.
Our portfolio continues to grow. We just announced the acquisition to be completed soon of Force10 Networks. We have Compellent. We have EqualLogic. We have KACE (systems management appliance). We have SecureWorks. We have Perot Systems. Obviously we have all the servers and all the client products. So we have a full broad spectrum of products. Again, Dell is THE x86 partner of choice. When you think about cloud and client virtualization and all the things that are going on, having an integrated product line from the desktop to the data center to the cloud will be important.
NEXT: The Benefits Of A Desktop To Data Center Product Portfolio
What are you seeing from customers in terms of demand for a product set that runs from the desktop all the way to the data center?
It varies by customer. Certainly when you get into mid-sized customers and smaller customers it's pretty common to see a vendor of choice across multiple product lines. I'll say the largest companies tend more toward a best of breed strategy.
We have a very large server and data center business now. We have an enterprise business that is almost $20 billion. We are the fastest growing new company in storage with Compellent, EqualLogic, Exanet, Ocarina and others. Yes, we acquired a few great companies to accelerate our progress, and you can expect we'll acquire more as needed. But that enterprise business was built on a foundation of the origins of the company in the client business.
We have had a consistent commitment to our customers and our business. The client business, which we're still committed to, has allowed us to build a huge server business. We've sold 15 million servers over the last decade. That has allowed us to build what is becoming a tremendous storage business. Now we're growing services and networking and yes, I think it's going to be huge, too. I think there is an integrated nature, a 'better together' story to this that's quite powerful. That's why channel partners will immediately want to engage with Dell if they have not already.
There are also other aspects to this. If one remembers back to the last time a large PC company was spun off or sold, there was a lot of share loss in servers for IBM. We have far greater share than IBM does in X86 servers now. Globally they are 14-15 percent. We are about 26-27 percent. Their [IBM server] share has gone down, down, down since they spun off the PC business.
There are very important reasons for that: one is the integrated nature of client and server sales in many accounts. There are also important economic reasons for it. If you open up a server and look at what's inside a server, it's processor, disk drives and memory. Those are the three primary cost ingredients that go into a server. Where are most of the processors, disk drive and memory in terms of industry volume today? They are still in the client. Actually, about 95 percent of them are in the client. So if you are not in the client business, you have a far, far smaller volume so your costs for those materials just went up.
Who is successful in volume x86 servers today? You would say Dell and also HP. Both of those companies have had this client business volume to go with it. When that goes away for the other guys, it will create opportunity for us.
NEXT: Dell's Supply Chain Advantages Over HP
How big an opportunity is there for Dell to leverage that supply chain advantage if HP gets out of the PC business?
It's a great opportunity for our channel partners first and foremost. It gives us a significant advantage. I am not going to give you a number. Call some of the financial analysts.
Talk about your views on the PC business.
We are committed to the PC business. We are committed to a broad range of solutions. I started the company in 1984 in my dorm room as a PC business, but in 1995 we got into the server business and now we have a broad range of solutions and services. I think that client business is as important as ever. We like that business. And we love our partners. We have been very consistent. You have seen our [channel] commitment. We have steadily grown the program. Everytime we acquire a new company, Force 10, SecureWorks, Compellent, KACE, Boomi, EqualLogic, we add to our channel program.
Talk about your feelings about the PC business at this point in time.
I've heard this term "post-PC era." And when I heard this term post-PC era, I knew I had heard that term before. I went and did a little searching. Actually you can find a press release from IBM where they are talking about the post PC era in 1999.
I have been around long enough to remember stuff like that. Around that time, the industry sold about 100 million personal computers a year. So that was the beginning of the post-PC era. Well, now it's 2011 and there is about 440 million PCs sold per year. So that means that the post-PC era has been better for the PC than whatever came before the post-PC era. If you talk to Gartner and say how many PCs are there, there's a 1.5 billion PC installed base. How many PCs are there going to be in 2014. Gartner will tell you 2 billion PCs in 2014.
How many tablets are going to be sold this year? You hear 40 million, 50 million -- pick a number. So 1.5 billion PCs, some number of tablets, but it's nowhere near the 440 million PCs that will be sold this year or the installed base.
NEXT: Dell On PCs, Smartphones And Tablets
I hear you clicking away [on a keyboard]. You're probably not using a tablet right now. First, you have a PC, then you got a smartphone, right? So when you got a smartphone, did you get rid of your PC? No. So now you have a smartphone and a PC and then you got a tablet. When you got a tablet, did you get rid of your smartphone or your PC? Now you have a tablet, a smartphone and a PC.
There is no question people are buying tablets. There is no question people are buying smartphones. But they are also buying 440 million PCs this year. By the way, does the channel make any money selling tablets?
Tablets are improving. That is true. I agree with that. I think you're going to see the line between what is a tablet and what is a PC get real blurry, and there should be a real continuum of products. You already see some things today that are first attempts at that.
We are obviously doing much more than PCs. Look at our last quarter results. We had record cash flow from operations of $2.4 billion during Q2 and we ended the quarter with $16.2 billion in cash and investments, also a record. We are strong. We've had $5.2 billion in cash flow from operations during the past 4 quarters. Our operating income was up 52 percent to $1.3 billion and our earnings per share were up 69 percent year over year. During the last four quarters EPS has been $2.07, our highest ever, up 83 percent year over year. We are getting stronger. We are continuing to transform and evolve our business. And we think that the PC is not going away.
What is your message to channel partners?
The message is we love our channel partners. We are committed to our channel partners. We are committed to the PC business and the data center and beyond.
Do you have an on-boarding strategy to bring on HP partners?
We have been on boarding large numbers of partners globally already for the last few years. We are certainly ready to do more with those partners and on-board new ones.
How big an opportunity is this for Dell?
It's a very big and great opportunity for the channel and for Dell. Others in the industry will do whatever they are going to do, which I guess nobody really knows yet, you can ask them about it. The summary is that Dell is now the x86 enterprise partner of choice. If I am in the channel I want to be working with the enterprise x86 partner of choice.
What is your final message to HP partners?
If you are a channel partner that has not joined us already, it's never been an easier decision or a better time for you to sign up with Dell. Let's get you signed up, trained and certified. Our consistent approach has proven itself. Let's get going. Call [Dell Vice President of Global Commercial Channels] Greg Davis or call me. We are ready.