Dell's solutions execution in 2014 will dictate its long-term success
 

Dell's solutions execution in 2014 will dictate its long-term success

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Dell's solutions execution in 2014 will dictate its long-term success Dell's solutions execution in 2014 will dictate its long-term success Document Transcript

  • TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C . TBR COMMENTARY Dell’s solutions execution in 2014 will dictate its long-term success Krista Macomber, Analyst (krista.macomber@tbri.com) Joseph Walent, Analyst (joseph.walent@tbri.com) Matthew Casey, Analyst (matthew.casey@tbri.com) Dec. 10, 2013 Despite hiccups in 3Q13, Dell is positioned to grow solutions market share as a private entity TBR estimates Dell’s corporate revenue dipped approximately 1% year-to-year in 3Q13, led by a 7.4% decline in x86 server revenue and a 4% year-to-year decline in End User Computing (EUC) revenue. We believe completion of Dell’s privatization resulted in short-term uncertainty among its commercial customers and partners. We also believe Tier 2 server vendors’ efforts to expand share hinder Dell’s ability to compete on price to win server deals. Dell’s shift in focus from preserving PC profitability to building market share helped to slow heavy PC revenue and unit declines in the face of continued attrition to tablets and smartphones. Dell, with privatization complete, will focus on achieving its long-term goal of becoming a solutions vendor, which TBR believes will result in incremental solutions share gains for the vendor. Dell must rapidly adapt its data center product portfolio and messaging to become a leading provider of end-to-end scalable solutions composed of hardware, software and services. It will target and integrate niche software and services acquisitions and adapt its sales efforts from transactional PC and server sales to software, consulting and management services, creating end-to-end solutions. Privatization will provide Dell with the agility and funding needed to become a solutions vendor, but its ultimate success will hinge on execution. This execution includes the challenging task of knitting its various data center hardware, software and services assets into a portfolio that meshes with customers’ private and hybrid cloud and big data requirements, as well as maintaining close relationships with customers. TBR believes Dell’s relationship with Silver Lake will place additional strain on the company’s ability to execute; although Dell is removed from Wall Street’s quarterly scrutiny, it still must avoid prolonging its debt repayment to Silver Lake. Executing on end-to end solutions will be more challenging following recent shakeups in Dell’s executive ranks, including the November
  • TBR departure of former President and Chief Commercial Officer Steve Felice, who brought valuable leadership and insights for Dell around expansion in the strategic consumer, SMB and Asia markets. All options, including divestment of core product lines such as consumer PCs, will be evaluated; however, TBR believes a divestiture is unlikely. Dell will remain heavily reliant on PCs and servers throughout 2016; however, the company will increasingly lead with software and services such as security as a value-add. TBR expects Dell to pair this solutions focus with an aggressive stance, especially on pricing and the way it compensates its sales force and rewards partners. Customers will benefit from continued innovation and expanded technology capabilities from Dell. Satisfying its customers and retaining loyalty will be a strategic priority for Dell but will be a challenge as Dell navigates selling with a solutions focus and integrating acquisitions into sales and R&D. Dell will be a threat to competitors, as it has competitive leeway to disrupt markets by pursuing market share gains. Dell will maintain strong relationships with SMB customers by augmenting its full hardware capabilities with investments in software and services Dell will be challenged to expand its presence in a data center marketplace that is evolving rapidly as functionality shifts from hardware to software, and purchasing decisions are increasingly led by workloads rather than by speeds and feeds. Dell’s server, storage and, increasingly, networking hardware bases in this marketplace are covered, but it must catch up to competitors on the software and services side and remains reliant on EUC for market presence and revenue. Dell targets a broad array of SMB, midmarket and enterprise customers, especially with its converged solutions, but its reputation as a lower-end vendor and the sheer breadth of its offerings in a nascent marketplace could inhibit adoption in higher-end accounts. TBR expects Dell’s corporate revenue mix will shift as its capabilities mature, but these gains will be incremental and most significant in SMB and midmarket accounts. Dell is positioned to target private and hybrid cloud buildouts through its robust custom-designed server business and rapidly increasing converged system install base. As customers seek IT agility, efficiency and simplicity, Dell will leverage its foundation in these capabilities to remain top of mind with customers, many of whom view Dell as their entire IT shop. However, migration to cloud-based environments coupled with big data growth increase the urgency for Dell to grow the scale of its storage business (which has hovered around $400 million since the discontinuation of Dell’s reseller relationship with EMC), sustain double-digit networking growth and augment these hardware competencies with investments in software, such as Gale management and Boomi integration. Dell will also build consulting and managed services capabilities around its Infrastructure and Cloud Computing business and utilize cloud services partners such as Joyent to extend its reach in public cloud. Venue will protect the company’s foothold in customer workspaces Dell faces the challenge of investing to grow its solutions business while protecting its PC business. Dell must prioritize stemming heavy PC market share and revenue losses from 2012 to protect this important entry point into commercial IT environments, as end-user computing constitutes more than 60% of Dell’s total revenue base and is essential to its relationships with customers and the channel. Dell’s new Venue line of tablet PCs and its focus on delivering cross-over consumer and commercial appeal will protect its PC business. Dell’s new dedicated tablet business and updated XPS line of notebook PCs, introduced in October, indicate Dell recognizes this imperative and is up to the task of protecting its presence in end-user workspaces. Highlighting the look and feel of devices and the user experience will help Dell maintain consumer appeal, while its reputation for device security, reliability and manageability will remain selling points for IT administrators. Dell will position tablets as a stronger support for its PC ecosystem. The new tablet business will provide Dell with the focus and agility to continue bringing innovative devices to the marketplace in a timely fashion, and moving away from its www.tbri.com pg. 2
  • TBR sole focus on Windows 8 over the preceding year with the introduction of two Android-based devices will broaden Dell’s addressable market. Dell Services made key alliances and appointments in 3Q13 to accelerate expansion in key markets and drive growth in 2014 Dell Services’ 3Q13 revenue growth remained consistent, although modest, despite the distraction of Dell going private during the quarter. Solutions that address enterprise and midsize business customers’ demand for cloud and cybersecurity made up the majority of demand for Dell Services during the quarter. TBR believes the restructuring of the Dell Services’ Applications and BPO business remained under way, with efforts expected to accelerate as a private company. Dell Services’ primary offerings — support and deployment — reportedly posted low-level growth, as hardware business clients continued to leverage service packages to extend hardware lifespan as a result of delayed refresh cycles. Dell Services’ 4Q13 and 2014 growth will hinge on continued traction with innovations in security, cloud and data center offerings. We anticipate Dell Services will focus on making niche acquisitions and forging strategic alliances to broaden its portfolio and enhance its value customers. The integration of Dell’s acquired software lines is streamlining go-to-market efforts and improving Dell’s ability to address customer demand The integration of Dell’s software group, in operations and portfolio offerings, enables the company to create new customer value and gain software traction in its core SMB and midmarket space. While Dell Software consists primarily of acquisitions, such as Quest, Kitenga, Toad and Enstratius, it is integrating and consolidating these disparate product lines to form cohesive solutions and streamline go-to-market efforts across the portfolio. The integration of R&D teams across acquisitions assists solutions such as SonicWall (traditionally appliance-based) as they are developed and embedded in new software solutions. Additionally, the integration of solutions and go-tomarket efforts allows Dell to more effectively address customer pain points. With organizations increasingly migrating IT environments to cloud, effectively managing, securing and leveraging information along this transformation can prove difficult. Dell’s software portfolio, focused on solutions areas including information management, security and business intelligence (BI), is positioned to address customer pain points. The value of the individual solutions from past acquisitions are applicable in specific use cases, but the integration and consolidation of operating groups in Dell and the solutions themselves in the portfolio positions Dell to effectively win customers, particularly in its traditional customer base of SMBs and midmarket organizations. Customer wins validated Dell’s strategy during the quarter. For example, the 3Q13 deal with Kennesaw State University leverages Dell’s integrated Toad BI solutions suite to optimize its internal business services. Note: Estimates are based on TBR’s assumptions to date. TBR’s final data analysis will publish in the Dell quarterly reports on Dec. 12, 2013. Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, telecom and enterprise network vendors, and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis. TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com. ©2013 Technology Business Research Inc. This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology Business Research will not be held liable or responsible for any decisions that are made based on this information. The information contained in this report and all other TBR products is not and should not be construed to be investment advice. TBR does not make any recommendations or provide any advice regarding the value, www.tbri.com pg. 3 View slide
  • TBR purchase, sale or retention of securities. This report is copyright-protected and supplied for the sole use of the recipient. Contact Technology Business Research, Inc. for permission to reproduce. www.tbri.com pg. 4 View slide