Rudedog- Re: Giga data..
First of all, it is certainly valid for you to post it, and for you to extrapolate on potential problems for Dell based on that report, and your own industry experience...in fact, it would be silly for us not to expect to be an on-going discussion re: potential service problems.....given the phenomenal rate of growth Dell is experiencing....I constantly review for information concerning Dell's (quality of service) ratings from different organizations....it is one of my checklist items on any investment I have........looking for (even expecting, a bit) a let-up in its (frequently, consistently) high ratings..
So, the issue you brought up, is certainly valid. I am glad that you also immediately recognized (and admitted) that the source may be bias..this certainly belongs to the discussion...additionally, the other (recent) reports, as of a few weeks ago, that Dell has maintained its high service ratings should be given quite a bit of weight......I do believe that they, at this point, should be given more weight (than the GIGA report)..but the GIGA report is some smoke.....Is there fire? Only time will tell...
More interesting that a few individual reports, and first-hand accounts (for me)....how does Dell rate vs. key competitors....is this (and it could be) that Dell is slipping (a little, some) from a lofty level...yet STILL maintains a reputation (ranking) higher than its competitors...and even, on a short-term basis, if Dell slips a bit....what (real, net) effect would that have on sales.....I don't know (or expect) that it would have a direct (immediate) correlation...and I would expect that it would take a little while to work its way (into a meaningful sales impact), thus, in all likelihood, giving the company time to react (to prevent harmful consequences for sales)...Given the data you presented however, it is not conclusive if sales will be affected...
Re: IBM. One point I think you failed to mention. Dell, indeed, could build (and maybe is) building a service organization (as opposed) to "farming it out" to IBM....Dell thinks/operates frequently in terms of ROI (unlike, apparently, some of its competitors).....By utilizing IBM's service organization, they are essentially leveraging SOME ONE ELSE's ASSETS for their own revenue/profit gains....this contibutes significantly to Dell's incredible ROI...and perhaps Dell would prefer (in the short-term, at least) to acheive some profit/revenue gain with little/no investment vs. a lot of profit/revenue gain with a significant investment (your proposal)....Certainly, as far as managing the stock price (in the short-term), entering high ROI business segments should (may?) have a more meaningful impact (then more lengthy, more costly implementations)......some would argue that the success of Dell's stock price has (in large part, mostly) been a function of its high ROI........Now, one could argue, and I think you are...that Dell at some point, HAS to invest in a meaningful service infrastructure to continue to grow profits (at a 35, 40,45% rate going forward). But do they really? Do you not buy Dell (managements') argument that thru the 4 pillars (1) International (2) Services...well, you know the rest...
that Dell can best acheive its profit growth objectives..Also, the agreement allows Dell to conserve cash..which can be invested in other (diverse) growth segments..
With all due respect to Compaq, perhaps, Dell also feels it is better to co-operate with the #1 service organization..then try to build a service organization that may never be any better than #3...
If anything, Dell has shown that they enter segments that they can win or pick off profit quickly and in incremental segments (part of ROI strategy, I suppose)...rather than enter market segments (even profitable ones), that they may (not) be able to win......Does building a large service organization (or buying one) really fit that successful (past) strategy? Not in my eyes..
Given Compaq's experience (with the Dec acquisition)...it is a little hard to argue that Dell is making a mistake...While Compaq's decision still has to play itself out, so far, it is certainly hard to argue that it was any sort of success....or even that it was the right decision.....maybe Compaq should have bought Gateway instead?
Another possibility is that Dell (behind the scenes) IS building a service org..(as you had noticed from certain hires), but, in the interim, as Dell improves its depth (and importantly quality)...Dell is working with IBM to improve its offering concerning sales/services and acheiving additional contribution at relatively low (none) investment.....Although I do not know the details of the IBM/Dell service agreement, it may well allow for such a provision (and Dell switching to its own service organization) at a certain time...Maybe Dell KNOWS it will take years to build a first-class (service) offering and it does not want to compete (even in a small way) in a segment where it is second-class...
One final possibility is that Dell has a (behind-the-scenes) agreement with IBM to take over the PC (or is it PCS) group in whole or part....but that both have decided that it makes sense to do it in an incremental way...both from a customer standpoint (and internal IBM standpoint) AND maybe even from a legal standpoint. I am only speculating here...
Although I would have been more comfortable had Dell overtook some of IBM's hardware manufacturing/distribution at the SAME time as the (announced) service agreement...it is clear (from the recent Forbes article and other sources) that Gerstner is not afraid (and, indeed, it is a significant part of his "barbell" strategy) to get rid of/outsource/diminish low return business.....like his PCS group (I believe that is what it is called)...there is precedent to believe (based on IBM's deals with Cisco, EMC, and others) that Dell may indeed wind up with that business...
If that is the case....if Dell winds up manufacturing/distributing some/all of IBM's hardware......would you say that puts the current service arrangement is a new light?
Ultimately, I have trust in Dell's management that they will not give away the store, and that they have adaquately assessed the risks of allowing IBM's service organization to (in some cases) front......("own" may be too strong a word)...these relationships.......Given Dell management's track record over the last 5 years...I think they deserve the benefit of the doubt here....Certainly, when it comes to issue(s) of ROI....they have my full trust.....I mean, these guys have INVENTED (or, at least, popularized) some of the most innovative ways of increasing return of investment (within the industry) and continue to set the (unmatched) standard.... |
