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Summary:

Hewlett Packard and Dell, two companies that are the face of the PC business, reported terrible financial results for the second quarter of 2012. They talk about a cloud makeover. Too bad, they missed the mobile opportunity and have no presence in tablet & smartphone business. Oops!

Michael Dell
photo: Dell

Dell stock, which hit an all time high at the turn of the century! has been slipping & sliding!

Dell, the company started by Michael Dell in his college dorm room, at one time was synonymous with the PC market. During the nineties, I reported on the company’s meteoric rise. Not a day passed when people didn’t extoll the virtues of the Dell way: a just-in-time production model that essentially wrung any and all efficiencies out of the PC ecosystem. Dialing into quarterly conference calls was like tuning into a sports fan network, except Michael Dell was the star of the show.

I was a loyal (and repeat) Dell customer. Like clockwork, I would buy a new Dell desktop or laptop, mostly to keep up with Microsoft’s Windows OS. And I never really had a problem with Dell machines — they were solid and lasted forever. Except when Apple launched the Titanium Powerbook, I switched and never looked back. I think it was frustration with Windows more than Dell.

What is Dell?

Earlier this morning when I was reading various analyst reports about the company’s most recent quarter – a disaster to say the least — I was left wondering what really happened to Dell. A few days ago, UBS analyst Steve Milunovich asked the question: “what does the HP brand stand for since being all things to all people means standing for nothing?” You can pretty ask the same question of Dell. What does the Dell brand really stand for these days? If you read this statement by chairman and CEO Michael Dell, you can see what I mean.

“We’re transforming our business, not for a quarter or a fiscal year, but to deliver differentiated customer value for the long term. We’re clear on our strategy and we’re building a leading portfolio of solutions to help our customers achieve their goals.”

A decade ago you could point to it and say, Dell makes computers — lots of them. Today, it has lost its grip on the PC business. The company paints a picture of an enterprise company, but it is hard to totally buy into that vision. The growing popularity of on-demand services such as Box.net plus growth in the infrastructure-as-a-service offerings from the likes of Amazon Web Services is turning the hardware business on its head. Can Dell win there? Who knows!

When I read through the transcript of Dell’s quarterly earnings call with Wall Street analysts, I was left wondering why they didn’t rake Dell over the coals for blowing the massive shift to mobile. Dell is mostly a non-player when it comes to tablets and smartphones, essentially two new form factors for what was Dell’s core offering: client computers.

Dell, in fact, is no different than HP which also has blown the shift to mobile and now is trying to do a comb-over by using cloud and enterprise as its areas of focus. HP’s second quarter of 2012 earnings read like a page out of a horror novel. It is bleeding in the PC business. Here is HP CEO Meg Whitman:

“HP is still in the early stages of a multi-year turnaround, and we’re making decent progress despite the headwinds.”

Caught Looking

So the chief executives of two companies who have so far blown the mobile shift are talking about trusting them to get it right in the long term. Dell and HP, for me, are to the PC business what RIM and Nokia are to the phone industry — incumbents that fell so in love with their core products and their form factors that they decided it was okay to ignore the behavioral shift in computing. That said, I would give Dell full marks for dipping its toes into the smart phones and tablets business with a few Android products. I would applaud them for trying and failing. However, they get no sympathy from me for not persisting.

HP and Dell (or Dell & HP) essentially rolled over and handed the PC market to the likes of Lenovo and Asus, who know how to play the game of lower-prices better than the two giants. They don’t have too many expensive executives to compensate with fat checks. Samsung is making a strong push in all sorts of client devices – laptops, tablets and most importantly, smartphones.

The problem is not the desire, but the ability. Dell’s attempts to play in the smartphone business have failed because they didn’t have the channel to compete in the market. They hired Ron Garriques, a big time mucky muck from Motorola and that didn’t work out. [Related: Why does anyone believe that hiring a Nokia guy would magically make HP a mobile player?]

The DNA problem

They are tied at the hip with Microsoft and its operating systems and as a result they cannot look beyond Microsoft. The fact is that both Dell and HP have offered consumers pretty much nothing in terms of innovation when it comes to PCs. Compare that with Apple and Samsung and you start to see that these two PC giants have been essentially twiddling their thumbs.

I have often argued that companies have a certain DNA and it is very hard to change that DNA. Dell, at the end of the day, is a logistics company and as a result cannot invent products and markets. Unfortunately, the Asian manufactures have figured out the game of making computers that fit the pockets of PC buyers in some of the faster-growing markets, such as Brazil and India. People see no reason to pay a premium for Dell or HP when Asus and Lenovo offer up similar machines.

Dell is betting that the new Windows 8 and Window RT tablets are going to be its savior. To answer that I will channel my colleague Kevin Tofel, who earlier this month didn’t mince words when he  pointed out that tablets are essentially a consumer-driven market and Dell’s lack of previous success leaves them skating on very thin ice.

To paraphrase an old ad: Dude, I am so not buying a Dell! Or an HP — and neither are most other people.

  1. Good analysis. I would add thought that Dell’s legendarily bad customer service has further alienated the consumer segment and shortened the runway for a turnaround.

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    1. @Liz, I believe that Dell has made some progress with customer service, but like Om says the product portfolio is the greater weakness today. Like Om, I’ve purchased many Dell products over the years, but I currently use a Samsung Chromebook and Nexus 7 tablet as my preferred device for routine work — much of which is hosted in the cloud.

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  2. Very, very good article. Nice job.

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    1. Thanks Justin.

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  3. Dell just bought Quest, a Microsoft Partner, that provides services to large firms. This would mimic the IBM route of years ago. I think the acquisition makes sense, because firms like Quest own the relationship that moves Dell hardware and Microsoft software into large corporate customers.

    But it completely ignores the consumer market. Might Dell be in a situation where it helps corporate customers set up Apple hardware products?

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    1. M. R. Pamidi, Ph. D. Thursday, August 23, 2012

      Sure, HP bought EDS a few years ago for $13 billion to ape IBM. Look what happened now, HP just wrote off ~$8 billion, Sigh!

      Both Dell and HP have lost their ways and will soon be replaced by Acer, Asus, Lenovo, and Samsung in the PC, tablets, mobile devices, and consumer electronics businesses.

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      1. Thanks for that nuggest MR. I do think that doing these patchwork upgrades are a bad idea, especially when a company doesn’t have a clear mission and clarity on what their business really is.

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      2. I would agree with you on … that everyone is trying to diversify. But HP could get out of the PC business if they truly wanted to. With all the management shuffling at HP, doesn’t seem to be clearly defined. Hurd, Apotheker, Whitman all seem to have/had very different goals for what they see as the future of HP. I think HP has all the parts to make a meaningful turn around but really needs to get its management and board together.

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  4. Nice article. PostPC era is real but ignored by both HP and Dell. The wintel ecosystem that created these vendors is disolving before our eyes. Yet the leaders as well as the rank/file hasn’t waken up to the obvious — mobility and cloud are disrupting the status quo faster then their “systems” and people can handle. Time to lead and act bold — or perish.

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  5. They believe to much in their numbers. Like all drugs numbers can be good or fatal.

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    1. So much insight in that tiny, concise comment. Thanks Ronald.

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  6. A couple of weeks ago I might have disagreed with you Om. I thought Dell had a solid plan to transform into a services business and leverage it’s PC business for both revenue and as a value add component to enterprise customers.

    But their latest results and the PC I just received from them has me re-thinking. I’ve faithfully brought Dell computers for the past 7 years. I was thoroughly satisfied with my last desktop. The build quality was outstanding.

    Three days ago I received my latest consumer desktop from them. I brought their premier consumer XPS desktop. The difference in build quality is stark. The case is flimsy and thas a thumb screw to open a case. A thumb screw!

    If Dell is going to be an enterprise company then get out of the consumer market. As someone who has influence over my organizations and customer buying decisions, what I buy as a consumer feeds into my recommendations in the enterprise. Likewise, if HP is going to be a cloud and services company why are they selling consumer machines? Make a decision and stay focused.

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  7. Lionel Menchaca Jr. Thursday, August 23, 2012

    Keith:

    Thanks for being a loyal customer up to this point. I hope we can give you reasons to stay on that path.

    Sorry to see the XPS desktop has been a disappointment. I have an older version of the one you bought I bet. On the desktop side, many customers want easy access, that’s why it has a thumbscrew. We don’t offer XPS desktops as a business machine. We do definitely offer XPS laptops as corporate machines. From my use of them, both the XPS 13 and 14 are would be great business machines.

    Definitely understand and agree with your point that what you buy as a consumer feeds into your decisions on the corporate buying side. We’ve realized it here at Dell for a while, but still have work to do on that front.

    If there is something I can help with on the desktop side, let me know. You can reach out to me on Twitter as @LionelatDell. Otherwise, I can share my contact info with Om and ask him to give it to you.

    Sincerely,
    LionelatDell

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    1. Thanks for replying Lionel. I have to agree with you on the laptop front. Over the last year I’ve brought 2 XPS 15′s and a XPS 14z. I’m happy with both those laptops for consumer machines. My previous machine was a XPS 420. Rock solid with a tool free case. There’s a big noticeable difference in the XPS 420 and the XPS 8500. I literally almost sent it back before I finished unboxing it. I don’t know if there’s anything you can do. The fit and finish just doesn’t meet my expectation for your premier consumer brand.

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    2. “On the desktop side, many customers want easy access, that’s why it has a thumbscrew”

      Seriously? May I suggest purchasing a Mac Pro to see how a case can be given easy access to its components without the aide of thumbscrews? Or if the newly impoverished Dell can’t afford one, go to eBay and get a PowerMac G4 or heck, even a blue & white PowerMac G3 (those 1999 machines must be really cheap by now) and see the elegant pull a lever and the case pops open solution.

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  8. Lionel Menchaca Jr. Thursday, August 23, 2012

    Om: As a Dell employee, which I have been for 17 years, this was a tough read. But I have a few thoughts on the subject:

    Don’t underestimate Dell’s presence and capability business side of the market. Today about 80% of our revenue comes from businesses. Corporate laptops and PCs are still a big part of that, but more of it is starting to come from enterprise solutions and services. And we’re building much more capability there. If you look at our acquisitions, they tend to be smaller ones. By comparison, HP has acquired large companies. In the end, like much in business, it will come down to execution.

    The enterprise solutions and services represent more than just a bet on the cloud. Building today’s data centers takes a lot of server, storage and networking hardware and software. On the cloud front, no disrespect to AWS, but there’s still lots of additional cloud services customers are asking for.

    Are there things I’m disappointed in? Sure. As a Dell employee, no question missing on mobile and tablet front up to this point hurts a lot. There are other things I’ll keep to myself for now.

    But as an employee who has seen lots of ups and downs (more ups than downs for sure) over the last 17 years, I still believe in where the company is heading. And I definitely think it’s way too early to relegate Dell to the trash heap.

    Thanks,
    LionelatDell

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    1. Lionel

      Two points.

      1. Thanks for taking the time and sharing your thoughts.
      2. Secondly, you are a good ambassador for your company as your comment sets a high standard for a clear comment telling your side of the story.

      That said, I have stated my opinions based on publicly available data and having watched the company for a few years less than you have worked at the company.

      I do promise you, that I will keep an eye on Dell and not forget about it.

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    2. Lionel,

      If Dell would concentrate on customer service, which we like to refer to as Dell-customer-disservice, they might have a chance to differentiate themselves from the rest of the now-delegated-to-alsorans bunch of PC makers. But this should have been thought of and treated a decade or two ago. There’s no reason to buy a Dell when you can get basically the same grade of hardware with the same software from many different vendors. As ronald above stated, Dell is/has been watching the numbers too closely to see what’s really going on with their business.
      Want to help drag Dell out of the bottom of the barrel, try reading some (or all) of Seth Godin’s writing. I would really hate to see a local business like Dell-fail.

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      1. Lionel Menchaca Friday, August 24, 2012

        Bobby: Understand those thoughts on customer service. In terms of hardware differentiation though, take a look at the XPS line of laptops if you haven’t already. While they are more expensive than an average laptop, the type of materials and the build quality is pretty solid in my experience.

        Thanks for the reminder about Seth Godin. I’ll admit, it’s been since a close friend gave me a copy of The Dip. Seth’s been busy since then… will check out other titles.

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  9. Great insight as always OM … and I cant disagree based on what you know publicly. I can also see why some may be frustrated with the pace of Dell’s reinvention .. but, we have some really cool disruptive stuff we are working on behind the scenes that … it wouldnt surprise me if some of our future announcements made your front page … I mean, industry changing stuff. But even I cant predict if or how well we will execute on our strategy. Aside from our secret sauce though, I think there is a huge upside for dell in the current stack wars. RIght now there really isnt a category for one vendor that is selling all-inclusive, fully automated, holistic and self-contained cloud software … and we will see a huge race into this new market this fall. And for msft and vmware, its all about leveraging their strength in enterprise to gain dominance in IaaS through advanced hybrid cloud. This is going to be all about giving the CIO the capability of providing cloud-equivalent services for on-premise while also gaining a management toolset that allows the CIO to offer the robustness and the cost of IaaS through a centrally controlled and monitored offering. So in this sense, it makes msft and vmware more like a strategic partner with CIO’s than a vendor, helping them to take back control of the cloud in their orgs. The way I see it, Dell stands to really benefit from this trend. Strong hybrid features are the single most strategic area here for the CIO. VMware needs to own all of the important networking services in order to maximize hybrid features. The ‘software defined data center’ strategically means for VMware that all workload related features become part of the transative persona, and cannot be reliant on proprietary 3rd party hardware or software. And Cisco’s entire value add is based on controlling these features. Now Dell on the other hand doesnt have a strategy that is contingent on our propietary hardware or software, we are perfectly happy promoting hybrid features because … we have both an Azure and vCloud IaaS service. So to me, we are really more aligned with msft and vmware and it appears Cisco will be increasingly divergent. Regardless though, if msft and vmware win in hypervisor networking, they will popularize new user interfaces and processes and tools for managing networks that will extend back to the physical network. They will probably certify multiple vendors switches to support their cloud software, and if Cisco doubles down on the Nexus 100v, msft and vmware may end up endorsing other vendors over Cisco. And all of that could be a key growth segment for Dell, and it could happen quite quickly. The annuity that CIO’s have had for the past decade from virtualizing physical servers is drying out, and they need a new place to turn for savings … that will be the all-inclusive private cloud software and hybrid cloud, and they will make another annuity that will last the next several years, 1st moving apps from different VM islands into a central private cloud, and then pushing apps into hybrid cloud partners.

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    1. Art

      Thanks for your insightful and detailed comment.

      On the data center and cloud makeover, I do agree – it is still early days and we are going to see a shifting landscape over next few years. It would be an interesting few years no doubt.

      I hope that what you are talking about (and not telling) us helps with Dell’s reinvention.

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    2. Let me guess… you’re a sales/marketing guy?

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      1. His post was fully buzzword-compliant.

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  10. I agree, it is hard to convince companies as large as Dell or HP to innovate products that have just worked, and been their bread and butter for so long. Regardless, their lack of innovation with consumer products is astounding. HP’s Envy line looks more like a Macbook than an HP product.

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