Michael Dell On VMware Spin-Off, Supply Shortages And Channel Commitment
“We’ve never been more optimistic about our ability to innovate, delight customers and deliver growth, and create value for all of our shareholders in the coming years,” said Dell in an exclusive interview with CRN.
Following Dell Technologies’ record-breaking second fiscal quarter, founder and CEO Michael Dell is bullish about his $94 billion company’s future, even with its upcoming planned spin-off of VMware and a supply chain shortage that is rocking the IT industry.
“We’ve never been more optimistic about our ability to innovate, delight customers and deliver growth, and create value for all of our shareholders in the coming years,” said Dell in an exclusive interview with CRN. “We have leadership positions in large, stable, expanding markets and strong underlying fundamentals. We’re driving a differentiated strategy to seize the tremendous growth that’s ahead of us.”
The Round Rock, Texas-based PC and infrastructure giant generated a record second quarter of $26.1 billion in revenue, up 15 percent year over year. Dell’s Client Solutions Group—which includes PCs, laptops, notebooks and monitors—climbed a whopping 27 percent year over year to $14.3 billion, with a record operating income of nearly $1 billion.
In an interview with CRN last week, Michael Dell talked about Dell’s resilience during the industry’s IT supply shortage, his commitment to channel partners amid solution provider concerns and the new remote workforce that’s sprouted from the COVID-19 pandemic.
“Nobody’s going to get a ‘Hero Award’ for being the first person back in the office,” said Dell.
Dell also talked to CRN about Dell’s upcoming spin-off of VMware. “Look, I’ll continue to be the chairman of both companies and the largest shareholder of both companies. Dell and VMware are going to partner super closely together,” he said.
Despite industry supply shortages, Dell shipped a record number of PCs and displays in the second quarter, while also shipping more servers than any other company. Talk about Dell’s supply chain and any advantages you have?
First of all, our buying power is a lot larger than many of the competitors, including [Hewlett Packard Enterprise], and we have strong relationships. At the end of the day, business is at some level about relationships, and these folks have known us for a long time. They’ve known me for 37 years. They’ve known [Vice Chairman] Jeff [Clarke] for almost just as long. We’re kind of like the permanent customer–and that matters.
Think about it from a perspective of: every time you build a new plant, it’s $8 billion dollars in the semiconductor business. Yeah, you want to know where the parts are going to go in the next three months or six months. But what you really want to know is where are they going to go in the next five to 10 years? So you go back to relationships. We have those relationships, but I still wish we had more supply.
I would say we have record demand, we have record supply and we have record shipments, but we don’t have enough supply. Our supply chain is functioning well. But certainly, I think everybody sees the challenges that are out there.
We’ve been at this a long time. We’ve put in place a series of strategies that have served us well, and when we make commitments to our partners around delivery, we were able to meet those commitments the vast majority of the time. The shortages that everyone in the industry are seeing around integrated circuits are going to continue for some time. It’s also leading to some component cost inflation. We’re working proactively with the strong relationships we have to minimize the impact to our customers.
Regarding Dell’s upcoming spin-off of VMware, talk about Dell’s capital structure and what you see ahead for Dell without being directly attached to VMware?
This is expected to occur in November. I think it absolutely creates additional growth opportunities for both Dell Technologies and for VMware, and also unlocks a lot of value for stakeholders. The relationship between the companies has never been stronger. We’ve created a unique and differentiated commercial agreement that essentially formalizes all the things we’ve been doing. So you know about Vx:Rail, all the stuff we’ve been doing with SD-WAN, software-defined networks, and all the joint product developments around supporting VMware Cloud Foundation and the multi-cloud platforms—all that continues uninterrupted. The companies will continue to partner in a super strong way.
It does simplify our ownership structure and capital structures that unlocks shareholder value and drives down our debt. We’ve been paying down debt aggressively, and this will accelerate all of that.
Look, I’ll continue to be the chairman of both companies and the largest shareholder of both companies. Dell and VMware are going to partner super closely together.
From a customer and partner perspective, the headline is: don’t expect any big changes. It’s great news for all of our stakeholders. I’ve explained this to certainly hundreds of customers one-on-one and everybody’s like, ‘Great. We get it.’
Bain & Company’s Chuck Whitten (pictured) recently became Dell’s new co-chief operating officer. What does he bring to the table?
Chuck is not a new face around Dell. He’s been around Dell for about 12 years, just not with a Dell badge on; he had a Bain Capital badge on. For the last five or so years, he’s been part of our executive leadership team and integral to everything we’ve been doing. So anything that has happened with Dell in the last decade or so, his fingerprints are all over.
This was really him sort of committing his career to Dell. He’s a fantastic leader. Given all the opportunities we have, it’s a great complement to Jeff [Clarke] and the team that we have him, and it’s great to have another fantastic leader on our team.
How will Whitten help in this new era of Dell that’s not directly attached to VMware?
We do it all together. In fact, I’m going to have a meeting in about an hour or two with Jeff, Chuck and Tom Sweet, our CFO. Now sometimes looking on the outside, you could attribute strategies and execution to one person—whether they’re successful or they fail—but in fact, it’s always a team sport. There are many people involved in making these things happen.
Chuck is a fantastic leader, and he’ll add additional bandwidth and additional brains around the table. I go back to all the opportunities that we want to execute on with the edge, with 5G, with data management, multi cloud—all those opportunities. There’s a lot to execute on, and Chuck will help.
How important are channel partners to Dell Technologies and how committed are you to them?
The results speak for themselves: channel performance was up 29 percent in the first half [of fiscal year 2022 year over year]. Client solutions through the channel was up 49 percent year over year. Servers were super strong, up 27 percent in the first half.
We did $58 billion [in channel orders over the past 12 months]; $58 billion is bigger than a lot of the companies CRN covers—combined.
We’re super pleased with the success that our partners are driving for us in the channel. I regularly meet with channel partners, and they’re very enthusiastic. If there’s one question I get, it’s about supply chain, ‘Hey, can we get more supply?’ But as I said, we’re shipping record amounts of product.
As you think about the diversity of solutions and capabilities that we have, and that being augmented by the unique skills of our partners and their incredible reach—it’s an unbeatable combination. That’s why we’re winning in the market and continuing to grow share. So our channel partners are a hugely important part of our success. We spend a lot of time making sure that they’re engaged and understand all the capabilities that we have, that they’re trained up, we listen to their feedback, and they’re a critical part of our whole business ecosystem.
Looking at the COVID-19 pandemic, what is Dell’s re-opening strategy? Are hybrid and remote work here to stay?
We’re super fortunate that we are in an industry that has the tools and technology where we can work from anywhere, right? So that’s a great thing.
The second thing I’d say is, nobody’s going to get a ‘Hero Award’ for being the first person back in the office. It’s just not the way it works. People want flexibility, and safety is a huge priority.
We’ve had a flexible work program that started back in the late 2000s. I think this shared experiment that the whole world has lived through has taught us all a lot. I think it’s a glimpse of the future. I don’t think we’re going to go back to the way it was, so every company is going to figure out what’s exactly right for itself.
For our company, there’ll be some appropriate balance. We’ve been for a long, long time encouraging everyone who can get a vaccine to get one. I’ve given this speech many times: we’re a technology company, we believe in science, I’ve got the vaccine, all my kids have got the vaccine—including my daughters who are childbearing age—you should get the vaccine too. The good news is people are getting vaccinated.
Overall, can you talk about Dell’s market momentum in 2021?
We had a really strong first half of the year and second quarter. We’ve never been more optimistic about our ability to innovate, delight customers and deliver growth and create value for all of our shareholders in the coming years.
We have leadership positions in large, stable, expanding markets and strong underlying fundamentals. We’re driving a differentiated strategy to seize the tremendous growth that’s ahead of us. We are the clear No. 1 [market share leader] in external storage. No. 1 in hyperconverged. No. 1 in mainstream servers and data protection appliances. Our client solutions business is No. 1 in revenues.
We’re investing heavily in a number of high-growth opportunities where we think we’re uniquely positioned to win: multi-cloud, edge, telecom, 5G, data management, [artificial intelligence and machine learning] workloads, and protecting our customers from ransomware with our Cyber Recovery solutions. We’re also prioritizing customer outcomes and modernizing our business model with APEX [as-a-service offerings].
If you look at the second quarter, our revenues were up 15 percent to $26.1 billion. We launched APEX, and that’s off to a strong start. We’ve continued to enhance our industry-leading VxRail hyperconverged systems. We’ve shipped a series of new ruggedized Poweredge servers. We’ve launched our Dell EMC streaming data platform that offers real-time analytics at the edge. We announced our open cloud-native telecom ecosystem to help build the next generation in 5G infrastructure and give communication service providers the open architecture that they want. Our client business was super strong in the second quarter, up 27 percent with strong growth in laptops, specifically our business laptops with Latitude and Precision. We introduced our new Dell Ultra Sharp webcam. We launched our Alienware X series for gaming laptops.
Our strategy is resonating with customers, with our team members and with our shareholders. Our first half results really show it.