Interview If Michael Dell were starting up in business today, it would be in storage and operate in China.
At least that's what he he said in a briefing and interview session with journalists last week.
He and Dell's EMEA President David Marmonti gave their views on aspects of Dell's business. The company is not out of the woods yet, but it's not in any real serious entanglement either.
Dell and services
Michael Dell said that Dell's services business is worth around $7bn. For every dollar spent on hardware there are two or three dollars spent on infrastructure support. Is hardware a loss-leader to get the services business? "I wouldn't say a loss-leader, but the industry is shifting to a solutions business."
Dell has made many niche service acquisitions in the past couple of years but no major one - nothing like the HP EDS purchase, for example. Why not? It aims to offer an a la carte service suite and not drown customers in costly consultants running blue sky projects or outsourcing, which Marmonti dismissed as "running your mess for less".
Are customers though, addicted to traditional IT consultants? "We're saying we think there is a better way." Is there a conflict with the Ernst & Youngs of the world? "Look, there's a role for them. It's not going to go away overnight. We work with these people."
Michael Dell wouldn't rule out a large services acquisition, but he'd prefer not to make one.
Dell and storage
One of Dell's claimed overall goals is to simplify IT. According to Marmonti, "iSCSI promises to completely simplify how customers deploy SAN (Storage Area Network) technology". That's the Dell EqualLogic storage array area. He adds: "We think we have the broadest array of storage technology in the industry," something that HP and IBM and NetApp might well disagree with.
Dell also sells EMC Clariion AX and CX storage arrays, with Marmonti saying: "We still have a fantastic relationship with EMC," and: "Our EMC relationship is alive and well and we intend to keep it that way." Are the EqualLogic iSCSI products on a collision course with EMC? "At the end of the day customers vote with their wallets... Customers using Fibre Channel (FC) storage have made a lot of investment and won't go away. But storage is so dynamic and iSCSI-based storage is more efficient for virtualized data centres."
This leaves you thinking that if iSCSI storage capabilities expanded to match FC and EMC kit sales fell, then Dell would simply move on.
Dell and flash
Regarding solid state storage (SSD) Michael Dell said Dell is an investor in Fusion-io and is very aware of that company's 4TB of PCI-e connected SSD storage used in IBM's Project QuickSilver. He is also aware of HP's intention to use Fusion-io technology to accelerate its servers and said: "SSD will have a role in Dell high-end SANs."
EMC's CX4 already has its SSD capability announced. So EqualLogic SANs? "Stay tuned."
He didn't comment on the subject of Dell flash-accelerating its servers. He did say that if he was starting a business today it would be a storage business and he'd go to China.
Asked about deduplication and spindown storage technology, he said: "We are looking at incorporating deduplication technology and other processes into our storage products."
Dell, costs, and manufacturing
Dell has said it's going to take $3bn of costs out of the business, the entire business. This is underway but no details of any progress made were offered.
Dell operates a build-to-order model for its direct customers and non-retail channel partners. The retail partner manufacturing operation is different, being a build-to-inventory model. Marmonti disagreed with the the suggestion that having two different manufacturing models added to Dell's costs, saying the supply chain had been tuned for build-to-order over many years. Marmonti said Dell's build-to-order manufacturing was a competitive advantage. He didn't say so, but build-to-order could be more expensive on a unit cost than build-to-inventory.
Dell has in-house factories and also uses contract manufacturing. Neither Michael Dell nor Marmonti would discuss specifics of factory closures, nor of moving manufacturing to lower cost countries. It is likely that contract manufacturing could grow as a proportion of Dell manufacturing, as Michael Dell said: "That wouldn't be a surprise." The possible corollary of in-house manufacturing reductions and/or transitions to lower-cost countries wasn't mentioned.
Dell and sub-netbooks
Michael Dell doesn't think that netbooks (cf Asus Eee PC) are a fantastic opportunity: "I don't think Netbooks will be a massive driver." He doesn't have a good idea about the ratio of netbook sales to laptop and desktop PCs but it's enough to stay in the netbook business: "I think it's hard to say. We've introduced a product. Additional ones will be coming."
What about sub-netbook products? "I think you'll see smaller and smaller screen devices from Dell. We've already seen nine inches. There is an opportunity for lots of disruption in that space."
Dell used to sell the Axim personal digital assistant from 2002 to 2007. There have been rumours about a Dell games console and a smart phone, perhaps using Google's Android software, but nothing substantial. Any Dell device in the PDA/smart phone area would be a me-too product, unless it were seen to offer exceptional value and or features compared to existing products from Rim, Apple, Nokia, Samsung and others.
Dell is a huge and high-quality company, unique in many, many ways. Michael Dell has had to come back from the chairman's role to sit once again in the driving seat of the business he founded. Asked what advice he would give the young Michael if he were starting out now, he said you must nurture and develop talent. Ah, the regret implicit in this, with echoes of Kevin Rollins, the previous Dell CEO who left in January 2007.
Dell is a company in transition and between two stools. No other computer hardware company has, as far as we know, made the transition from being 100 per cent direct to being balanced between direct online and telesales on the one hand and a spectrum of channel partners and retail outlets on the other.
It is suffering. Business results in Europe suffered because of a tactical PC pricing move and business is being affected by the looming recession. Is Dell just a more accurate economic thermometer than other IT suppliers, or is it more exposed because its manufacturing costs are higher than they need be and its service revenues less than they could be?
We can't say. What we can say is that Michael Dell and his company are so tightly entwined that they'll succeed or fail together. There is another looming problem of course. After the current business fire-fighting is sorted there is the issue of who will become the next Dell CEO, a nurtured insider or an external hire? That's a whole new question. ®