Dell Says It's Ready For Industry Rebound
Friday December 13, 10:34 am ET
By Patrick Seitz
URL:http://biz.yahoo.com/ibd/021213/tech1_1.html
During the tech spending downturn of the last two years, Dell Computer Corp. (NasdaqNM:DELL - News) has diligently prepared itself for the eventual recovery.
The computer maker has grabbed market share from others and forged new alliances. Executives believe that undercutting rivals with Dell's direct, build-to-order sales model will pay off in big gains when the economy revs up again.
Dell has added 16,000 new business customers in North and South America alone during the last two years, says Joseph Marengi, president of Dell's Americas business.
"Those are other companies' customers. They're now Dell customers," Marengi said. Dell's strategy has been to acquire new customers, keep them satisfied and sell them more.
"That's what this whole thing is about - expand your base, treat them well, get 'em loyal. Then you've got other people to sell to when the recovery comes," Marengi said.
Dell is poised to sprint past the competition when spending returns, analysts say.
"They've positioned themselves incredibly well," said Brooks Gray, an analyst with consultant Technology Business Research.
Dell has gained market share in personal computers, servers and storage systems during the downturn. Dell also has fattened its profit margins over the last two quarters.
In addition to expanding its customer base, Dell has shown that it can get a larger portion of a customer's tech spending once it's in the door, Gray says.
Because Dell has its operational costs under control, it has the luxury of looking beyond its core business of PCs and low-end servers, he says. It's entered adjacent businesses, including network switches, printers and handheld computers.
The challenges for Dell will be to manage its growing customer base and keep satisfaction high, Gray says.
More New Customers
In Dell's largest accounts, the portion of revenue coming from new customers has increased more than 50% from a year ago, Dell President Kevin Rollins told analysts during the company's third-quarter conference call Nov. 14. At the same time, Dell has increased its revenue from existing corporate accounts by almost 20%.
Dell attributes $5 billion in revenue to market share gains during the last seven quarters.
Dell's worldwide PC market share was 15.8% in the third quarter based on unit shipments, according to market researcher International Data Corp. It was 11% at the end of 2000. Dell is now the No. 1 maker of PCs.
Dell is the No. 2 maker worldwide of standard Intel-based servers behind Hewlett-Packard Co. But Dell's server market share has grown from 15.9% at the end of 2000 to 21.8% last quarter.
Large customers are key to Dell's future growth. The Round Rock, Texas, company has been preaching the benefits of industry standards and using partners to win sales from corporations, government agencies and colleges. Recent customer wins include Bombay Co., Cox Communications Inc., Creative Artists Agency and Long & Foster Real Estate Inc.
Two high-profile Dell partners are data storage gear maker EMC Corp. and services heavyweight Electronic Data Systems Corp.
EDS sees its relationship with Dell as synergistic. The two companies are generating business for each other that they wouldn't have gotten separately, says Jeff Gilliam, president of global strategic alliances for EDS.
Alliance Could Grow
The alliance has "the potential to go much further," Gilliam said. EDS and Dell are starting to think more strategically about their relationship. The two are looking to bring in other companies to participate in their alliance, he says.
"It's been a good partnership," analyst Gray said. "EDS needs volume. Dell needs credibility at the service level. It's a very complementary relationship."
The two have been particularly successful in winning business from companies that want to outsource management of their PCs, he says.
Dell has booked more than $1 billion in revenue for its Dell Managed Services this year, Marengi says. For a monthly fee, Dell provides desktop and notebook computers for customers, and maintains them as well. HP and IBM Corp. offer similar services.
Dell and EDS are interested in creating standard offerings of hardware and services that can be repeated from one customer to the next. Dell provides the hardware and basic maintenance services, and EDS provides higher-end services, such as system integration.
Dell is interested in computer installations that can be replicated because they're cheaper and can show quantifiable returns on investment for customers, Marengi says.
That's where industry standards come in. Dell and its partners are pushing servers with Intel Corp. processors running Microsoft Corp.'s Windows or open-source Linux operating systems.
Dell's message is that Intel servers can perform just as well in most cases as pricey proprietary servers from companies like Sun Microsystems Inc.
Marengi cites the increasing number of Dell installations running Oracle Corp. database software and SAP AG business software. In the old days, those applications ran mainly on proprietary servers.
Dell hardware is running 22,000 Oracle installations and 3,000 SAP installations, he says.
"Those numbers are not small numbers anymore," Marengi said. "At the end of the day, customers are speaking for themselves."
Although Dell is increasing its service offerings, it doesn't want to create a large services business for its own sake. It's interested in using services to help sell hardware, Marengi says. Still, Dell will probably do between $3.5 billion and $4 billion in service revenue this year.
The growth over the past two years has defied expectations, Marengi says.
"We've done things in the last two years that shouldn't have been done in this economic environment," he said. |
