Stephen Foley: Late off the starting grid, Dell is hoping for an Apple-style tech miracle
Saturday 26 June 2010
US Outlook: It is hard not to sympathise a little with Michael Dell, the founder and chief executive of the global computer giant that bears his name.
His is one of the great entrepreneurial stories of our time, the tale of a man who began piecing together custom computers on his dorm room floor in Texas in 1984 and built the biggest PC manufacturer in the world. But today that crown has been lost to Hewlett-Packard, while it is the turtle-necked one over at Apple who is lauded as America's Entrepreneur-in-Chief, whose every product launch seems to generate a bigger wow.
I confess I was jabbing to get a reaction when I asked Mr Dell this week if he had an iPad. "I don't think that's a useful line of questioning," he responded, without a smile. I persisted. Surely you test out your rivals' products? "I don't think that's a useful line of questioning."
Mr Dell doesn't do soundbites, he doesn't pontificate on the tech industry, he doesn't depart from corporatespeak. In short, he couldn't be less of a showman – and that is absolutely no bad thing. The bulk of Dell's operations are not focused on the consumer. Three-quarters of its revenue comes from supplying PCs, servers and storage systems to business and, increasingly, selling the IT services that will help a company pull them all together. And if there is one thing that Mr Dell excels at it is talking deep tech with corporate IT directors and chief executives.
The important contrast between Steve Jobs and Michael Dell is not between a showman and a shy man, it is between Apple's soaraway profit growth and Dell's gnawingly disappointing financial results.
It is three years since Mr Dell sacked his chief executive and took back day-to-day control of the company (a fiction, since he was very much in control even when the roles of chairman and chief executive were split), and the share price has halved in that time. Dell is still paying the price for its founder's attachment to the business model that made his company huge. It used to assemble PCs itself, to order, shipping directly to customers. That stopped working in the middle of the last decade when PCs truly became a commodity product and Dell was ill-equipped to deal with a price war.
To his credit, Mr Dell has recognised the need to catch up, so these days the company ships ready-made PCs via retailers and outsources the bulk of its manufacturing, but it still has to deal with too much complexity in its product range and hasn't found all the cost- cutting tricks that its rivals use.
The company's investor day on Thursday was designed to highlight the business-to-business areas of Dell's operations, and especially its IT services division, and to drag the focus away from the miserable performance of the consumer business. The cutest line of the morning came when Mr Dell was asked about the opportunities for the company in the exploding market for smartphones. "The first thing I think about is all of the servers and storage required to serve up the data that will be pulled by these smartphone users."
Nonetheless, Dell is trying to get in on the act with phones. It has just launched a super-size touchscreen device called the Streak (yes, really), which it hopes will be big enough to satisfy people who lust for the iPad but don't want the hassle of a second device to carry around. It will have a tablet of its own later this year, and is refreshing its range of high-end laptops.
That will be a key component of improving the consumer division's operating margins from the current, paltry 1 per cent but, without an Apple-style miracle, the business looks like being a drag on the group for the foreseeable future. It is almost six years since IBM took the radical decision to sell its PC business to the Chinese firm Lenovo, in order to concentrate on higher-margin servers and services. Wall Street's patience is not inexhaustible and if Dell cannot soon show real improvements in its consumer division, there will be growing calls for a similar amputation – and that would surely be wrench too far for Mr Dell.
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