The head of Dell’s enterprise business last week claimed the firm was on track to take the number one spot in the x86 server market this year, kicking out incumbent HP.
Marius Haas made himself a hostage to server market fortune as the Texan firm shipped its enterprise top brass into London to convince customers, and channel partners, that its “transformation” into a true end-to-end IT vendor was on track.
At the same time, senior execs said the firm was committed to its client business, and ID’d some of its favoured enemies as it strives to establish itself as a serious enterprise player.
The vendor has been re-engineering itself for what feels like a decade, buying up services, software and storages businesses as its once all conquering PC manufacturing operation delivered less and less of a strategic advantage, with Michael Dell stepping down as CEO, before returning to the hot seat five years ago.
But the pace, and the stakes, have been raised in recent months. A reorganisation of the firm created amongst other things, a powerful centralised enterprise solution business spanning servers, networking and storage. Meanwhile, Michael Dell’s battle to take the company private has seen boardroom and investor manoeuvring overshadow the progress of Dell’s business, and could potentially see the firm lose its eponymous founder if he fails.
But last week, at a meeting with journalists, Haas, Dell’s president for enterprise solutions, concentrated on operational matters, introducing the execs who flesh out the enterprise team and highlighting areas where he thinks he can demonstrate solid progress.
“By the end of the year, we expect our x86 server business will number one worldwide,” said Haas, saying he expected a strong performance in upcoming numbers from IDC and Gartner. Haas joined Dell last year, after a short stint at investment firm KKR - before that, he’d spent years at HP.
At the close of last year, Dell stood in second place in x86 servers, according to IDC, growing factory revenues by 5.7 per cent and taking 22.9 per cent of the overall market by revenue. HP was in first place with 32.7 per cent, on the back of 4.4 per cent growth. IBM was in third place with 16.7 per cent of revenues, on the back of a 2.3 per cent slip.
But winning out in a market where margins are unlikely to do anything but shrink or disappear completely is not a recipe for enterprise success. So, unsurprisingly, Haas made much play of the vendor’s services, storage and software businesses. The storage biz is the more prominent of these, with Haas describing it as “an important piece for us” and a source of a “lot of excitement”. The business is headed up by Peter Korce, a former HP, Compaq and DEC exec.
“This will be a very exciting year for storage,” he said, without giving too many details of why, for now.
It’s easy to say Dell is trying to be a bit more like HP
Haas also emphasised the company’s increased spending on R&D, introducing Sam Greenblatt, the enterprise group’s chief architect and technology - and a long-serving HP exec up until last October. Traditionally Dell built its business on just being able to put together standard components really efficiently. It wasn’t exactly renowned for adding to the store of human knowledge, or doing blue sky research.
Dell has certainly upped its R&D spend, which now hovers around 2 per cent of revenue. In the past it rarely crept up above 1 per cent. However, that is still well below Apple’s 2.5 per cent and HP’s 2.8 per cent - the latter figure seen as part of an attempt to catch up on the firm’s bleeding edge heyday.
It’s easy to say Dell is trying to be a bit more like HP - the more so as o many of the enterprise team are HP alumni. Brian Humphries, vice president and general manager for the enterprise solutions group, identified the firm he left in January as “enemy number one”.
Not that IBM gets off the hook. Execs hinted at a specific “IBM attack plan”, a particularly opportunistic move given the question mark over Big Blue’s own x86 server business. Given that the putative buyer Lenovo has a minimal server business, not buying IBM’s biz shouldn’t trouble Dell’s effort to take the number one spot. Not for now.
Looking at the reorganised Dell, one could be forgiven for assuming that splitting out the consumer business makes it an easy target for spinning off. Forrest Norrod vice president and general manager for server solutions insisted this was not the case. First of all, if Dell wants to be an end-to-end IT provider, client is one of the ends. Secondly, he said, it gives the firm scale, certainly when it came to sourcing components and presumably when it is dealing with partners and customers. Then again, given the chaos that engulfed HP when erstwhile chief Leo Apotheker declared his intention to offload its client business, Norrod and his colleagues are hardly likely to repeat that mistake. At least not while they’re a public company. [Yes, Norrod is also an ex-HP man - though he left the firm in the early 1990s.]
Unsurprisingly, all the execs emphasised the importance of partners - at least when prompted, with Humphries reeling off a list of partners that had been visited on this trip.
So, there are two striking aspects of Dell’s “transformation”. The first that it is making the attempt at all. IT acquisitions are notoriously bad for business, and converting yourself from a commodity player to a true value-add player is a stunningly hard feat to pull off. IBM may have transformed itself into a high-end services-based cash machine, but it was not exactly a commodity player to start with.
The second striking aspect is that HP figures so much in it. HP is the firm it has to beat to take that number one x86 server slot. HP is also the epitome of how not to manage spin-offs and acquisitions. And HP was also the IT industry’s prime example of how to build an innovation culture that both customers and employees could believe in.
With so much ex-HP expertise in his enterprise group, Michael Dell must really hope they learned the right lessons in their time at his major rival. ®