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Dell (s 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(s MSFT) Windows OS. And I never really had a problem with Dell machines — they were solid and lasted forever. Except when Apple(s AAPL) 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 (s AMZN) 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 (s HPQ) 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.”
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(s RIMM) and Nokia(s NOK) 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 (s GOOG) 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.