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Dell's president and CEO outlines the company's strategy for becoming a "broadly based and broadly acknowledged IT company."
Dell is expected to report on Feb. 10 record revenue for its fiscal year 2005, which ends Monday. The past year has seen the company make strides in expanding out of its traditional role as a provider of PCs to become a true provider of enterprise-level hardware and services.
That move officially began when the company changed its name from Dell Computer Corp. to Dell Inc. in July 2003. Last July, Kevin Rollins succeeded founder Michael Dell as chief executive. He also serves as president. Rollins recently met with InformationWeek editors at Dell's headquarters in Round Rock, Texas, to discuss the future of the company. Following are excerpts from our interview.
InformationWeek: Dell has never been involved in a mega HP-Compaq type merger or a mega IBM-Lenovo type of divestiture. Do you look for those kinds of opportunities?
Rollins: I don't think we will be one of the consolidators from the standpoint of acquisitions. We have been consolidating from the standpoint of our share gains. I think that will continue, and we believe we have enough organic growth that acquisition is probably not the best way for us to utilize our energy and resources. Within the hardware space, we really have not seen any major acquisitions that were successful. So, the chances of us doing a major acquisition are small.
InformationWeek: Two years ago you established a goal of increasing revenue from $30 billion to $60 million in five years, and right now, you appear to be about a year ahead of that pace. How does Dell have to change as it becomes a $60 billion or $80 billion company?
Rollins: Part of those changes will be how we communicate. One of the things that we have not done a good job of currently is communicating the level of R&D we invest.
Secondly, we need to change the understanding of Dell as a PC company. I think for the next five years or so the diversification of Dell's portfolio will be a real story. I think Dell is emerging as a major diversified IT company.
InformationWeek: Do people today view Dell as an IT company, as opposed to a computer company?
Rollins: Some do. I think the customers who have been buying a broad range of our products and services do view Dell as a broad-based IT partner. I think the public perception in the marketplace is not that yet.
But we're getting into more service categories, peripherals, printers, and when you combine that with our PC, server, and storage businesses, we have quite a few in the multibillion-dollar range, which gives us enough scale to call us major players.
It's probably our fault for focusing a bit too much on PCs and PC market share in the past. There are major corporations where we have a very large share in PCs, servers, and storage, and they are starting to expect more from us. I envision in the next three years or so that's what Dell is going to become.
InformationWeek: Dell has systematically added businesses, from PCs to servers to storage to printers, and more recently televisions. Where can Dell move next?
Rollins: If you look at those product categories, with the exception of PCs and servers, we're pretty much in the 5% to 6% market-share range. In TVs we've barely scratched the surface. In printers, we should sell over 5 million of those this year, but again, barely scratching the surface. We're not looking to layer on another business yet. We want to take those we have and drive them to the same level of share we have in our PC business, and do that globally.
InformationWeek: What about a larger consumer push given your TV product line and efforts by some of your competitors, like Hewlett-Packard, which has announced its intentions to deliver a TiVo-like media hub this year?
Rollins: For us, we have to look at the profitability of any category, and also its size. TVs looked to be big. Imaging and printers is another big category. The whole notion of the PC as the central nervous system of the digital home is what we are going to continue to push forward on, but whether that means a digital hub device or other kinds of peripherals, we'll see. We want to see how some of these products actually emerge.
InformationWeek: Will the historical Dell model of swooping in on markets as they mature with low-price products continue?
Rollins: That's what we do. Dabbling in little, small, nichy pieces of business is not where we add value.
InformationWeek: How important do you think the next year to 18 months will be for Dell's new blade-server effort?
Rollins: We just launched that product in November, but so far we've had tremendous interest. We think that will continue as the promise of blades--density and better value--is now starting to be realized. Up until we launched our product, blades were actually very expensive and they didn't really pay back. Large corporate customers were telling us they were not that impressed. We think now we've provided a value equation. But we will have to see what happens when we get to multicore processors and how the density will affect thermal considerations. We're all still looking at how do you cool it when you put that many processors in a blade and increase density in a rack.
InformationWeek: You see blade servers as remaining a niche for some time to come?
Rollins: Can it get to be 10% to 15% of the server market, which is not really a niche anymore? It probably can. But I think it needed the catalyst of Dell's input to get there. Now the last issue needed to really drive the market is going to be some form of standards. Right now you've got multiple flavors of blade structures. Usually new product categories don't really take off until you've got a standard and it has not emerged yet. You can lead, but you've got to have people follow, and I think right now everybody is saying, "Follow me."
InformationWeek: Do you feel your competitive position may be as advantageous as you've enjoyed in some time? Is that due to specific missteps that your competitors have made?
Rollins: I think on the PC side, with IBM exiting, we're seeing that this is something they had hoped they could do for some time given the fact that the hardware is not all that profitable. Some of the reasonable minds in this industry are suggesting that it's just not worth it to stay in the PC business and lose money. IBM is the first to admit it, and I think there will be others. The first one out looks the smartest, rather than the last one out, but I'm not predicting who the next one will be.
But we actually make a lot of money in PCs. We are the low-cost producer with the best margins. So for us, this is very good news.
HP has done a very nice job of cutting out costs in trying to integrate two big companies. But at the end of the day, if you look at where they are now versus where those two companies were prior to the merger, they're really at the same place: The same businesses that were making money still make money, and the same ones that didn't still don't.
InformationWeek: Do you envision that Dell can gain 30% market share worldwide in PCs, or even greater?
Rollins: Well, in the U.S. we're at a little over 30% now, and if you look at some of the business units in the U.S. it's closer to 40% or 50%. So what that tells us is that it is possible worldwide. We have about 18% of the worldwide market today, so we can double that to 36%.
But, that's an increasingly inaccurate way to measure our company success. We want to see our servers and storage market share as high as our PC market share, and the same with services and printers. When you add all those things up, the notion of a $60 billion or $80 billion company is pretty simple to get to. It's not simple to do, but it's simple to add up the numbers. So we're very encouraged about the potential for the company to grow into this broadly based and broadly acknowledged IT company. We think of it kind of like our manifest density, and we have a lot of work to do to get there.
To find out more about Dell's plans for the future, read our full story in InformationWeek's Feb. 7 issue.
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