Dell at 30 – Plans Disruption, grows Share

Dell Highlights

• Michael wants Dell to have the role of disrupter and democratiser of technology
• It has improved its market shares in PC, Server
• It embraces Software Defined approaches to Storage and Networking
• Is a builder and broker of Clouds
• Could be the most successful of the largest IT suppliers in terms of growth – but it won’t tell

Following our analysis of Dell in January I thought it would be a good idea to profile them again – not least because this newly privatised company made a handful of statements about its business at its Annual Analyst Conference (DAAC) from which we’re able to draw a more or less complete picture. I’m sure you’ll want to learn more about its business and strategy.

The Disrupter and Democratiser of Technology

Michael said that despite being a global company operating in 180 countries he still considered Austin as home. 7 months after privatisation the team has come together, ‘is having lots of fun’ winning and gaining market share.

Perhaps influenced by celebrating the company’s 30^th Birthday he was in a reflective mood, painting a picture of his company and our industry at an important inflection point. He believes that the mega themes of Cloud, Mobility, Big Data and Security are key to the future of its customers’ success. At a business size level SMB spending is growing strongly – a sector employing 2/3rds of all workers – and they’re asking Dell to help them consolidate and stay relevant: it’s a changing conversation.

‘You have to have a point of view’, Michael stated, ‘but Dell also has a brand’. He claims this is a time of ‘change and risk’ for customers – there’s an urgency to embrace opportunities, but many are locked into proprietary technologies and relationships and can’t afford to move. He stresses that his company’s new role is to be the ‘disrupter and democratiser of technology’.

It’s not just Michael and his employees who witness the company’s new enthusiasm following privatisation – I asked EXASOL, Boeing and Jenkon customer panellists and they all bore witness to a very positive new Dell.

PC and Client Businesses Liberated

Jeff Clarke (Head of End-User Computing) claimed the company has grown its market share partially through focusing on enterprise-class PCs, tablets and workstations and partially through re-introducing lower priced consumer products – especially important for emerging country markets – which it had withdrawn from in the run up to privatisation last year. He reported success of its Smart Selection process, which reduces order times by providing off-the-shelf versions of its most popular configurations. It added 3 million retail customers in North America last year and its products are available in 11k Chinese stores.

Jeff reported ‘double digit’ growth for his business in Q1, although we don’t know whether than was in unit shipments or revenues. At a country level he indicated particularly strong growth in Japan (more than 40%) and China (40%), a 20% growth in the US and ‘high teens’ in UK, Germany and Mexico.

We show Dell’s PC market share in the Figure 2 – it was third in the $175B market, behind Lenovo and HP in the year to the end of March.

The new Number 2 in Servers

Dell’s strongest market share is in servers: not only has it been growing its business as other leading vendor revenues decline, but only sells x86-based products and so is tied to processors with accelerated market momentum since the Credit Crunch of 2008. In the year to the end of March it had an 18.0% share of the $55B market, although still significantly behind HP with a 23.5% share (see Figure 3). IBM’s decision to sell its x86 System x business to Lenovo will give Dell another competitor. In fact Michael reported that he’s been to see many of IBM’s top partners – some may change supplier, or take an alternative as a hedge: none in his opinion will take no action.

Dell claims that one third of its commercial business is now through channels. It also has a new partnership with Oracle to bring its databases to mid-market customers.

Embracing Software Defined Storage and Networking

Dell’s performance in storage has been weak if we only measure it on the sales of arrays following the ending of its partnership with EMC and acquisition of EqualLogic, Compellent and Ocarina. We give it a 5.7% share of the $27B market (see Figure 4). However it has been actively helping its customers speed up their applications by putting storage disks and flash closer (and sometimes inside) their servers. Michael is enthusiastic about his company being one of the biggest shippers of PBs, even if they are increasingly outside its array business. He reports success of its ‘flash at the price of disk’ strategy, claiming that 98% of Compellent arrays now include some flash. Its Fluid Cache for SAN approach is also attracting attention – even if the 5 million IOPS performance demonstrated at Dell World 2013 is designed for the most performance intensive application environments.
Dell’s market share in enterprise networking is even smaller – just 1.1% of a $59B market according to our research for the year to the end of Q1 (see Figure 5). Dell’s hardware products include PowerConnect and the top-of-rack devices acquired with Force10.

Tom Burns (Head of Dell Networking) believes the network ‘has become cool again’. He reports that Dell’s approach is to give its customers 3 choices. In particular:

• Traditional network devices using RESTful APIs; he claims it has shipped 39k Compressed Chasses since launching them in 2011
• Hypervisor-based networking with VMware NSX, Microsoft and its joint Open Stack approach with Red Hat
• Open Flow based networking, giving them the opportunity to mix them with traditional switches

Dell is less reticent than many of the other leading hardware suppliers to promote Software Defined approaches in storage and networking: it partners with Atlantis, Nexenta, Cumulus Networks and others making it more disruptive. Dell also reported a double-digit growth of its own software business in Q1.

The Builder and Broker of Clouds

Dell supplies its systems to all sizes of Service Provider and enterprises, having shipped a total of 1 million servers to Cloud builders. I found out more about its approach when I spoke with Nick Hyner, Cloud Director, Dell Services, EMEA, and Guy Currier, Director of Global Cloud Solutions Marketing, at the Cloud World Forum in London recently. In the hyperscale market they think there are plenty of potential customers who – unlike Google, Amazon and Rackspace – don’t want to build their own servers, including a major one that alas I can’t name. This is one area where Dell moves above its ‘mid market’ customer targets.

Last year Dell scrapped plans to offer public Cloud services from its own data centres to adopt a brokerage approach, using the system management capabilities it acquired with Enstratius. As part of its partner programme it allows the use of IaaS and PaaS from Google Cloud Platform, Microsoft Azure, CenturyLink, DropBox and others from a single pane of glass. It aims to help its customers choose and use public Cloud services easily – part of its ‘democratic’ agenda presumably. Of course Dell also supplies its own SaaS offerings such as SonicWall and SecureWorks.

Outperforming its Rivals – but by How Much?

In case you should forget Dell’s ‘Q1’ runs from February to April and so is part of its FY15[1], rather than FY14. CFO Tom Sweet told us the company had managed to pay off $1B of the debt required for privatisation in the quarter, in line with its commitments.

Marius Haas (Head of Enterprise Solutions) gave us some interesting data about its Q1 FY15 revenue – that its strongest growth was from SMB, followed by consumers and preferred customers. Large accounts grew least. Alas this isn’t enough to reconstruct its total performance.

In fact Dell has done an excellent job of keeping its results secret, but ITCandor has to estimate its performance – as the fifth largest IT supplier it’s essential for our market modelling. For what it’s worth and with absolutely no feedback from Dell, we believe it grew its revenues by 12% in calendar Q1 2014. Even if its growth was half that, it will have outgrown all of its rivals down to Lenovo in twelfth position, which had significant acquisition revenues (see Figure 6).

Some Conclusions – Nelson Mandela, Genghis Khan and Dell

When it comes to democracy and disruption Dell is no Nelson Mandela or Genghis Khan, but I understand what Michael means. Most companies would have tried to emulate Cisco’s position in networks, IBM’s in mainframes, Oracle’s in databases or HP in printers, but for most of its 30 years Dell was content to provide standard, tested technology at lower cost, before moving beyond a ‘me-too’ status to owning its own IP in storage, software and services in recent years.
By focusing on industry standard offerings it’s helped lower prices and widen computer ownership; by embracing new ways of connecting disk and flash drives it’s taking a strong role in the disaggregation of storage and it’s not afraid to play a future role in the development of Software Defined Storage and Networking markets. In future it will need to be even more innovative, using its IP to build end-to-end solutions in its chosen vertical markets. For now it seems that it is the most successful of the largest systems suppliers. Let me know if you agree.

[1] In this report Dell’s claims for Q1 growth are February-April, while our research findings are for January-March