Dell's solutions execution in 2014 will dictate its long-term successDocument Transcript
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 .
Dell’s solutions execution in 2014 will
dictate its long-term success
Krista Macomber, Analyst
Joseph Walent, Analyst
Matthew Casey, Analyst
Dec. 10, 2013
Despite hiccups in 3Q13, Dell is positioned to grow solutions market share as a
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
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
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
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
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
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