kaka - I was unimpressed by the IBM deal - it was just a supply deal despite a lot of hype on this thread hinting of much bigger stuff behind the scenes. The Unisys deal was also just an OEM deal, giving DELL the ability to close sales that needed a large "anchor" machine. That was the same reason that CPQ and HP did their OEM deals with Unisys. CPQ and HP dropped Unisys when their own internal development got them to the point where they no longer needed a fill in product. DELL would probably do the same if Intel developed a big SMP set of building blocks.
The EMC deal is different in scope, structure, and strategy. The down market, and some of its fallout, created unique challenges - and for DELL, unique opportunity. The announcement of the proposed CPQ / HP merger (really the acquisition of CPQ by HP), combined with CPQ exiting the Alpha business, meant that the "new HP" would transition to become the only big player to offer Intel-based systems from handhelds to fault tolerant machines. Accompanying that shift, the "new HP" is reflecting the current HP bias towards a more unix-centric model, with MSFT relegated to lower-end enterprise and client. That opened the door for DELL to fill in as a stronger enterprise partner with MSFT. But how to get the capability without incurring the cost of high end development, along with fixed expenses which work against the DELL model of as much percentage variable cost as possible?
The creative answer was in part to work out a deal with EMC and MSFT's joint venture with Accenture, Avenade. EMC, facing declining revenue and increased resistance in its high cost, high margin enterprise business, gets a route into the volume market that is more visible than an OEM deal. MSFT gets to leverage Avenade and show the value of that class of services organization, while building capability to combat Sun and IBM for enterprise business. DELL gets the services needed to specify, sell and install high end systems, and the storage components needed to complete the configuration, in a completely leveraged model which has virtually no fixed cost and thus fits the DELL model perfectly. They have good options to modify that strategy if the business takes off, if the economy recovers, or if we go deeper into recession.
I would expect that DELL will cut similar deals to fill in the rest of their competitive matrix. The beauty is that they have much lower risk than HP, IBM or SUN, who because of their product lines have to invest big bucks internally to provide those offerings. DELL can always consolidate or acquire any of those capabilities that turn out to be valuable.
I think MSD and the team "got back to basics" at exactly the right time - well maybe a few quarters late, but still ahead of the collapse of the market - which has enabled them to maintain a strong business and grow share in the face of one of the ugliest downturns in recent history. At the same time, they are developing this highly leveraged model to expand their offering and grow their market reach. Very impressive.
I have continued routine covered call selling on most of my holdings and have also done some LEAPS. But with the market as shaky as it is now, I'm just not comfortable with an instrument with a fixed life and a decaying time value, no matter how long the time horizon is, so I've put most of the money from call sales directly into equity purchase. About half of that has been DELL, and I may increase that stake if I can confirm that they are on the strategy I think they are on... it could be the plan that propels DELL to the next level. |
