Does Dell Matter Anymore?

The Dell of today pales in comparison to the major competitor it was a few years ago, said Sam Haffar, president and co-CEO of Computex, a solution provider in Houston. "It used to be difficult to sell against Dell because of their price points or the ease of doing business with them. But that's not the case anymore. HP has tweaked its pricing and Dell has been marginalized. Once you strip the pricing away, what does Dell have?"

Haffar said Dell's pain is his gain. In fact, in the past 12 months he has converted eight Dell accounts in whole or part to HP because he can offer service and support that Dell can't match. He said his business grew 35 percent last year, bolstered by his ability to convert or make inroads into Dell accounts. And he's on track to grow 35 percent to 40 percent this year, fueled by his success against Dell, he added.

A Dell spokesman countered that the Round Rock, Texas-based company still remains a force in the market.

"It boils down to the fact that we provide a great customer experience and great products," said spokesman Dean Kline. "And it's the reason that we've become the leading computer provider in the world. We have the broadest portfolio of products in our history. We have made great investments across the business to make sure we are giving customers a great experience and we are continuing to improve where we can."

But another large solution provider who was recruited by a Dell channel team recently begged to differ. "Dell is a commodity company groping to find its way in a solutions market," said the executive, who asked not to be identified. "At the end of the day are they saying anything compelling? No."

A few years ago, when IBM and HP were on the ropes, Dell could have delivered a knockout blow by partnering with the channel, he said, but not now. "They were a captive of 'buy direct' and they waited too long. Whether they can recover or not, time will tell."

ORGANIZE THE CHAOS
Dell's woes are as dramatic as they are puzzling to many solution provider executives who see a quick fix to the problems. Many solution providers who for years have steeled themselves for battle against the direct vendor say that Dell's best and quickest route to new growth and profitability is to better organize its seemingly chaotic channel forays.

Dell, for its part, acknowledged its long relationships with the channel, but said any recent moves to go after new VARs don't signal a strategic shift at the company.

"We have always looked for those areas where it made sense to partner with the channel, for example government or health care," Kline said. "If you have a specific set of skills, or a particular application or a service capability in a particular location, [Dell has partnered with solution providers]. As far as the idea [of the channel] being the next great opportunity for us, I don't think you should watch for us to make any big strategic shift."

Just last month, Dell warned that for its fiscal second quarter ended Aug. 4, it expected earnings per share to be 21 cents to 23 cents, down 44 percent to 49 percent from the year-earlier period and substantially below analysts' estimates of 32 cents per share. Dell said its fiscal second-quarter revenue should reach $14 billion, up 4.3 percent from second-quarter 2005 but below analysts' expectations of $14.2 billion.

Dell blamed the shortfall on "aggressive pricing in a slowing commercial market worldwide." But analysts and some customers say there are other things contributing to company's shortfall, namely service and technical glitches.

Cindy Shaw, vice president of research, computer hardware and services at Moors and Cabot, an equity research firm in San Francisco, said in a report last month, "We are reducing estimates and our price target to reflect increasing concern about Dell's customer experience challenges and ability to succeed given current market trends."

Shaw, in the report, said she was responding in part to a Better Business Bureau (BBB) report that for every PC or printer sold to a U.S. consumer, a Dell customer is about 2.5 times as likely to complain to the BBB as a Gateway customer and possibly 16 times as likely as an HP customer.

Dell's image, too, has been tainted by reports of isolated instances of fires in its laptop computers. A large solution provider that sells both Dell and HP was calling on a large commercial account last month.

"They are a big HP house," said the solution provider, who asked not to be identified. But something about Dell came up. We said that we could supply Dell but the CIO joked, 'That's all we need—exploding laptops.'"

WHAT PARTNER CONFERENCE?
Still, many solution providers who have done business with Dell in the past and hope to do more business with the vendor in the future cling to the hope that Dell's ongoing woes could be a silver lining to the channel. As its U.S. market share flatlines while rival HP's enjoys double-digit growth, some believe Dell has an opportunity to significantly grow its business through solution providers.

"They are not the boogie man anymore," acknowledged one of Dell's largest U.S. solution providers, who asked not to be identified. "But because they are not doing well, that could be a huge opportunity [for Dell to bolster its channel sales]. The more competition we get between Dell, IBM, HP and Lenovo, the better it is for resellers. All it does is help us sell more."

But Dell's window for growing its channel presence may be rapidly closing. Last spring, Dell showed signs that its long-standing covert relationship with the channel may be growing into a more strategic push to grow its revenue through solution providers. In March, the Dell solution provider said he was alerted to a new channel initiative in which the vendor said it would target up to 20 national resellers to go after commercial business in a plan similar to an existing one in the public-sector market.

Dell even hinted at putting together a partner conference in Austin, Texas, for solution providers. But there has been little follow-up on the plan, the solution provider said. "We've heard nothing on the partner conference, but they do seem to be covertly creating channel programs to get their numbers back."

He noted that Dell is now paying half a point in rebate money on Dell products sold if solution providers hit certain revenue bars.

Dell won't comment at all on the progress of its earlier effort to partner with solution providers to deliver on-site IT support and repair services. In April, Dell was preparing to run field tests of the services effort with Reliable IT, Springfield, Va., which performs next-day, on-site IT support in partnership with OnForce, New York, said Scott Shaul, president and CEO of Reliable IT, at the time. Field logistics automation company ServicePower, Louisville, Ky., was also working with Dell and Reliable for this particular effort, and was to be part of the tests, said Chris Smith, CEO of ServicePower Field Service Solutions. "They definitely want to run a test with us in certain territories, " Shaul said of Dell. But last week Shaul declined to comment about any deal with Dell. Shaul declined to say whether or not the deal with Dell he spoke of in April was still in the works.

ServicePower's Chris Smith also declined to comment, or say if the deal with Dell he acknowledged in April was still pending.

SERVICE WITHOUT A SMILE
Some longtime Dell solution providers say the vendor's service and support problems are beginning to jeopardize their relationship with the vendor.

Carrie Miles, president of CompuChicks, an Orlando, Fla., solution provider that specializes in small-business accounts and counts Dell as its primary system vendor, said she had a run-in with a Dell service person earlier this month.

"I sell Dell because I really like their three-year, on-site, next-day warranty," Miles said. "That's a good selling point and I've never had a problem with Dell before. But I called in for a doctor's office that had a DVD drive down and all I was asking for is for someone to come in and change the drive out, and this guy [Dell online tech support] gives me nothing but rigmarole. If Dell makes it difficult for me to become profitable, or their quality goes down, or their support becomes nonexistent, I'll look at other vendors before it becomes a disaster."

Computex's Haffar noted that he's been able to demonstrate his value with services such as data replication, clustering and the ability to do Active Directory or Exchange implementations. "Because of this, we have gotten into Dell accounts as a turnkey provider and at that point, the hardware doesn't even matter."

Still, solution providers say that if Dell were to better acknowledge and support its limited channel effort, it could go a long way in getting the vendor headed on the right track.

Miles said she doesn't expect a traditional channel program from Dell similar to ones from HP or IBM that pay market development funds or incentive rebates to boost solution provider margins. A simple fix would be to have a dedicated support staff and call-in number for solution providers.

As it stands now, Dell solution providers in essence have to wait in line for customer support with other customers even though they are generating tens of thousands of dollars each year for the vendor, Miles said.

"Hypothetically, Dell has a formal partner program," she said. "But here's the reality; I shouldn't have to talk to a bozo [Dell customer support person] when I'm trying to get support for a customer who bought their product under warranty."

Other solution providers that count larger commercial accounts among their customers said Dell is starting to promise them dedicated channel reps. And solution providers said the Dell's channel representatives now boast that Dell's channel business is its fastest-growing segment. But one solution provider who has listened to Dell's pitch and who asked not to be identified remains skeptical.

"Dell is trying to better compete against IBM and HP and they realize they need to have a channel, but they don't have the business processes or the infrastructure to be a partner," he said.

STEVEN BURKE and DAN NEEL contributed to this story.