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Dell is stuck between an Apple and a hard place

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Dell’s stock took a dive this morning after it lowered its revenue estimates for the year, citing weak demand. While it’s server business remained strong, there’s no doubt that Michael Dell, the company’s CEO, is navigating a fine line.

On one side, Dell faces huge encroachments from Apple’s (s aapl) phones and tablets, which are cutting into Dell’s consumer PC and notebook business. On the other, it faces threats from Quanta and other wholesale manufacturers as efforts such as Facebook’s Open Compute threaten to reduce its importance in the server-making business for large webscale buyers and even cloud companies.

Dell’s losing streak on the consumer side.

Dell’s consumer business hit the skids this quarter and was down 3 percent from the previous quarter, although up from the previous year. However, at 19 percent of Dell’s revenue, the consumer business is an important one for Dell and one where it appears to be struggling.

Part of this is that consumer demand for laptops and desktops has been affected by Apple — not just because people are buying iPads, but also because there is a halo effect that leads consumers to purchase more Apple computers after they get stuck on the phones and tablets. Analyst Shaw Wu at Sterne, Agee & Leach told Bloomberg that he expects 45 percent of Dell’s business is vulnerable to Apple. That’s not just because the consumer market likes iPads and MacBooks, but also because enterprises and small to medium businesses are adopting the iconic machines.

There’s also a challenge to Dell’s core PC business on the consumer side because the PC is increasingly seen as a dinosaur. Today, Gartner released PC shipment sales for Europe and the U.S. that shows that while Dell’s market share increased by tens of basis points, overall units sold declined by 12.7 percent in Western Europe from the second quarter of the previous year. And while Michael Dell said on the results call that plans for the Windows 8 tablet are coming along well and that it still supports Android, these are not the tablets people are buying. Just last week, Dell canceled the five-inch Streak tablet/phone combo.

The cloud is strong now, but it could evaporate.

The server business isn’t so grim, although Dell did mention a weakness in public sector buying of servers and computers. However, the company is in the midst of transition from a low-margin server seller and a reseller of other companies’ products to a purveyor of its own, higher-margin gear.

Forrest Norrad, head of DCS

This seemed to cause analysts much chagrin as Dell saw revenue in its storage business drop rapidly after it stopped reselling EMC (s emc) gear to focus on building up its portfolio of storage products. Analysts were concerned that a similar gap could occur as Dell transitions to selling its own networking gear after the Force10 acquisition.

But there’s another threat on the server side, which is Facebook’s Open Compute effort and the creation of a community of IT buyers that wants to eliminate the middlemen in server sales and go directly to ODMs such as Quanta to get exactly the type of servers they want and need. And while Dell can adapt to serve the needs of large webscale and IT buyers — it has in many ways with the creation of Dell’s Cloud Computing Solutions group for webscale customers — its inability to do so in the past partially led to the need to create a new way of looking at servers designed specifically for companies such as Facebook, Rackspace (s rax) and others. Even investment banks are looking at ways to use the standard to create their own hardware.

That’s a looming threat, but a direct one. Less direct is the result of governments and SMBs that are big Dell clients moving their businesses to cloud providers. Unless Dell ensures it’s a supplier to those cloud providers (and Open Compute may make that more difficult or less profitable), it could find itself with its own Dell gear and few folks to sell it to.

The narrow path for Dell.

So Michael Dell is stuck trying to find a way to reinvigorate a consumer business where its name is synonymous with the aging PC, while developing tablets and other mobile devices to sell to both consumers and businesses. Winning against Apple in this realm won’t be easy, and there’s also plenty of low-cost Chinese competition that’s moving into this sector including ZTE, which Dell currently resells.

Meanwhile, the cloud that these mobile devices connect to may not be powered by Dell boxes anymore, but instead by gear made by the same company Dell uses to manufacture its products. So Michael Dell must hope that he can boost the higher-margin Dell-branded technology and IP to a point where it can win over enterprises and businesses.

It will also rely on services such as those to get people up and running on the cloud faster. Recent news around its Crowbar tool is an example of how Dell’s taking this road — it’s adding value to its server business by easing the task of deploying cloud computing and big data software onto them. Let’s hope the path opens up a bit to leave Dell with room to maneuver.

21 Responses to “Dell is stuck between an Apple and a hard place”

  1. Julian Troubleux

    Anyone with an ounce of common sense can see the complete ridiculous of this writers claims. For instance she states, “while Dell’s market share increased by tens of basis points, overall units sold declined by 12.7 percent in Western Europe” There is much wrong with this statement, but lets start with the most obvious. Units sold declined, but market share increased. My eight year old can see that is maximizing your profits in a very bad economy. Not only that, but she uses Western Europe as her data point? Last time I checked western europe was on fire. What cracker jack box did this writer come from? The whole article is a joke, and her attempts to compare Dell to Apple is like comparing Dell to the pencil manufacturing business. Apple does not compete in Dell’s market and vise versa. Apple has a good product, but it’s not a business product and it never will be. I have an ipad and I thought it might replace my dell laptop at first, but the ipad’s capability is woefully inadequate. I sent my laptop in for repairs and was screaming in computing pain by the end of the first day. There is no printing, internet, or processing power that could even play world of warcraft on the fancy tablet. It is fun, dont get me wrong, but it is nothing more than an accessory. Even using the tablet in business is not possible with out a base computer/server/cloud to interface with. Maybe the future holds something different, but I do not see Apple gobbling up the business side of of any computer maker’s market.

  2. Julie Dinkins-Borkowski

    I find the article humorous in the way it trys to paint dell as falling on hard times with absolutely no data to support the claim. Over and over the author states something along the lines, ‘while sales numbers are up, there was a blip that indicated a drop by a fraction point…. blah blah blah.’ Newsflash. Dell is doing just fine. Better than expected, in fact. But yall go ahead with your apple pipe dreams that somehow they are in decline. Having the HQ in Texas helps alot.

    How’s the unionization of the apple stores going btw?

    • Apple was revived when it switched from the IBM PowerPC to Intel processors and reinvented its operating system based upon UNIX. That was about 10 years or so ago, when its stock was in the $7 range. I knew all this, but hesitated at the time and didn’t buy – 2 years ago I dumped Dell and bought Apple at $85. Now I just wish I’d bought much more Apple!

  3. Christian Krejcik

    Interesting article but one glaring hole…Dell’s new strategic direction…Dell is moving from a PC/Hardware company to a Cloud Services solution provider. See acquisition of Boomi (check out to get a flavor for what Dell is set to do). Additionally Dell is a few weeks away from a major announcement at’s annual user conference, Dreamforce, where Dell will announce that they will be the first (and only) U.S. company to resell the popular CRM software. This is just one example of the upcoming announcements and partnerships Dell has secured and will be leveraging through the Cloud integration application Boomi. BTW Boomi integrates all disparate applications including on-premise and behind firewalls. Cool stuff! I just bought a lot of Dell stock.

  4. Lindsworth Horatio Deer

    Innovation is in Apple design and research DNA, as evident form their frequent patent filings and significant product iterations and software updates. Not Dell; they are retailers of a product that has very unfriendly customer care and concerns themselves little with customer interaction or even basic product aesthetics.

    Apple maintains what they sell and do not “sponge” off their good name. The day Apple stops innovating, they die. This is the trap that has befallen Dell, as they slip into the long night of the “post-PC era” as describe by Apple CEO Steve Jobs, now increasing looking to be an Android powered future with Tablets and smartphones.

    Innovation will save them in the long run from the juggernaut called Android!

      • Lindsworth Horatio Deer

        Innovation is key. Their “toys” as you so style them are now standards adored by the technerati of the Developed world!! The “danger” of the past as abated, thanks to Apple design engineers and the Jonathan Rubenstein, who decided to folow his star back to Palm..and the death embrace of HP, who are al about profits and pleasing their shareholders and not interested in innovation!

        Rest assured I do not praise Apple with idle words. Behold, at the very door, Android’s Droids are coming ……..So I patronize Apple for their Bravery….but pour scorn on Dell for their Fear…of Google Android OS and their long term ambitions in both the PC and Tablet Markets!!!

  5. Dell has been once the leading seller of laptops and computers, but in today’s scenario market conditions are really different since the evolution of smart phones and tablets, To gain back Dell would have to be innovative and improve upon quality and style then only they can hope to come back in market…

  6. Nicholas

    I bought a Dell Streak to test app development on Android, and I truly liked the device. Good build quality. But, absolutely no support.

    How Dell could get into the market hoping to hop along without any software upgrades is beyond me. They could play of they had a strong product, since many companies are beginning to consider tablets for business tasks. I’m personally moving to such a company shortly to design mobile apps, and left a large drug store chain where I design an iPad app for pharmacists.

    Strategically, these companies have to learn to innovate on hardware and services. Dell just doesn’t have it, and it was difficult to drop $650 on one of their attempts. The boxes littering our offices just are not appealing in the new world of work.

  7. Nokia, RIM, Dell,… No intrinsic value there. They all innovated (with Dell it was a business model, not a product) at one point, which took them into the big leagues, and once they were there, they fell for the trap that their name would keep them there, and they no longer had to innovate (or they thought they could pass off minor incremental changes as innovation). Nokia and Dell sell commodity hardware with somebody else’s software, and are arrogant enough to think that people will pay a premium for their name. RIM refused to accept the essence of technology: everything changes, and if they don’t, they will be gone.