Amid SEC Scrutiny, Dell Lays Out New Strategic Agenda

He sits down with a potential customer who may be leaning toward a Dell purchase and makes his move, stressing configuration control and service.

"They may be looking at Dell," Pivonka said. "They were looking at Dell being an all-Intel provider. But support has been a big thing for us—the lack of support on the Dell platform works in our favor."

Three years ago, some of these same prospects would have opted for Dell hardware, tapping Assured Computing to handle the software and installation, he said. But, Round Rock, Texas-based Dell's service issues and bad publicity surrounding burning laptops and massive recalls have caused the pendulum to swing back.

It helps that many of Assured Computing's customers are in the retail business, such as restaurants, and view immediate service and support as essential. "These [customers] are open seven days a week," Pivonka said. "They can't afford to take that system, ship it to Round Rock for replacement, and wait four weeks. We can do it in four hours."

In the past year, Pivonka said, Assured Computing's sales have grown 30 percent. During the same period, Dell's revenue has grown in the low single digits and its stock price has slipped 30 percent. Meanwhile, its profit dropped by 51 percent in the last quarter.

And last week, the hole Dell has been trying to climb out of got deeper. The company said it would delay the filing of its mandatory 10-Q report with the U.S. Securities and Exchange Commission because of a continued SEC investigation, and a probe by its board of directors, into its finances. In addition, Dell announced that the U.S. Attorney for the Southern District of New York has begun a separate but parallel federal probe into the company, subpoenaing its records dating back to 2002.

Amid the controversies, Dell executives last week met with hand-picked members of the press to discuss their product and services strategy. Dell has begun to demonstrate a multipronged approach, including:

Aligning itself as closely as it can with successful partners, including EMC and Advanced Micro Devices, as it demonstrated during "Tech Day" in New York last week.

Improving its services profile, both for consumers and small customers as well as enterprise customers in an effort to move away from low-margin hardware.

Re-engaging Michael Dell as the ever-present corporate face, tapping into the charisma and brash confidence that the corporate founder demonstrated during its rise to the top of the PC industry and upper echelon of the Fortune 500.

And saying as little as it must about the myriad investigations that are hovering overhead.

Dell has dubbed its higher-end product and services strategy "Dell 2.0," and during Tech Day, Dell CEO Kevin Rollins spelled it out.

One pillar of that strategy will be a decreased reliance on performance and cost, and a sharper focus on industrial design and usability, Rollins said. Dell also will parse the number of component suppliers it uses to produce notebooks, desktops, servers and other hardware.

"We're evaluating a full range of supplier-partner relationship models," he said. "Our own development opportunities probably add a little less value on certain low-end PCs and servers, so we're open to a new, open, holistic model."

Dell has cut its list of approved vendors in half for key components, enabling better-quality providers to emerge in the industry, Rollins said. Two of those approved vendors, EMC and AMD, are sharing Dell's spotlight, at least for now.

For example, a key part of Rollins' Tech Day address last week was his announcement that Dell was re-upping its partnership with EMC, Hopkinton, Mass., for another five years. EMC CEO Joe Tucci joined Rollins on stage and proclaimed the first five years of the partnership a big success.

"It's hard to believe it's been five years," Tucci said. "Five years seems to have gone like that," he said, snapping his fingers.

"Partnerships in any aspect of life take a lot of work," Tucci added. "It's several things [with EMC and Dell]. Our engineering teams work together to define products. What pricing characteristics do we want? We segment the market. A lot of our effort goes into our go-to-market side, where we surround our customers in sales and service organizations. I have to give a lot of credit to Kevin [Rollins]."

Dell also highlighted its first two AMD-based desktops, Dimension systems, that carry roughly half the price of similar Optiplex desktops built with Intel processors.

Ironically, both partnerships could be double-edged swords. Some analysts have suggested Intel has used AMD's closer pact with Dell to begin taking a bite out of Dell's advantage in components by eliminating any "exclusivity" bonuses it may have previously given the PC maker. Moreover, Dell has lent new credibility to an AMD platform long ago embraced by its rivals in the custom-system channel.

"We've been on the AMD platform the last five years," Pivonka said. "Eighty percent of the systems we sell are AMD-based. One of the things we really appreciated is Dell saying, 'AMD is a viable opportunity here.' [Customers] say, 'Dell has embraced AMD, it must be a good alternative.' We say to the client, 'We're an AMD platform.' "

And with EMC and Dell together targeting the lower end of the network storage arena, and showing market- share growth over the past five years, any new negative issues with Dell could have a parallel negative impact on EMC in competitive engagements.

"It will help [us] when a customer is looking at a storage solution that is a Dell/EMC solution because of the almost new FUD that is out there, the new concerns surrounding Dell and their support system," said Steve Bohman, vice president of Columbus Micro Systems, a Columbus, Ohio-based builder of custom PCs, servers and storage. "It does have a particular effect in the storage situation, where customers are starting to recognize there are alternatives out there."

Rollins reminded the New York audience last week that his company has committed to spending $150 million to improve customer service. "Although Dell has always tried to deliver good, quality service and support to our customers, it's a hallmark of Dell, expectations in this area have changed and we think that's a good thing. We think many of our customers expect and are willing to pay for high-quality services," Rollins said. "We're evaluating the full range of our customer service requirements throughout the life cycle. We are evaluating that by business to determine where the direct model allows us to change the service paradigm in a way that will create significant, new customer value."

Rollins said key to that strategy is an expansion of DellConnect, an online remote break-fix service. He also said Dell has 300 "large customers" for its Platinum Plus services program for enterprises—another remote service that integrates remote, realtime network diagnostics with a dashboard interface and Google Earth.

That compares with the 500 customers maintained by rival Hewlett-Packard, Palo Alto, Calif., that have signed up for HP's soup-to-nuts Integrated Support Management offering; Dell's $4.9 billion annual services revenue is also playing catch-up to HP's $15 billion-plus services business.

Rollins and Michael Dell, though, believe Dell's direct-sales model will provide an advantage in its services business it has not yet realized as it develops "domain knowledge" in key vertical markets, even as it hones its online services tools.

And we may be hearing more about it from Michael Dell himself. Not only did he take center stage in unveiling an array of new products last week in New York, days earlier he appeared at a gaming conference in Austin, Texas, during a "fireside chat" with gamers. Amid the investigations, recalls, services issues and falling profits, Dell responded to a question last week about Rollins' future in which he showed his continued confidence in the company's track.

"The job of the board of directors is to determine who the management of the company should be," Dell said. "Who elects the directors is the shareholders. I'm the largest shareholder in the company. You can do your own math on this.

"I think Kevin Rollins is an outstanding executive. Characterizations of the company's challenges being only of Kevin's doing are inaccurate. Kevin and I run the business together," the chairman said. "If you want to blame somebody, you can blame me, too. We believe we have a very strong team at the company. Our com-pany will continue to grow and prosper and do well."

Dell may be the largest shareholder, but the computer maker's many woes have hurt him in the wallet. And his rivals understand that ongoing troubles only help them.

"I think the opportunity is there to be able to sort of take advantage of some of the information that's been out in the public to use, creating that little bit of FUD surrounding Dell," Bohman said. Now, he said, solution providers can approach clients and add doubts by telling them, "Maybe Dell's not always the safest play.' "