HP’s Hardware Exit Could Give Dell A Boost

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As a result of its acquisition activity in the last five years (since Dell returned to the CEO job in January 2007 after a three-year hiatus as board chairman, replacing Kevin Rollins), the company is moving into providing cloud systems and cloud services in a big way. Put it all together, and Dell is quickly approaching the rarified air occupied by such venerable all-purpose IT companies as IBM, Hewlett-Packard (HP) and Oracle.

“When Michael returned to take back the CEO job in 2007, the company was struggling and hadn’t changed its business model,” said Charles King, an analyst with Pund-IT Research. “Back in 2007, change was in the air; there was a strong sense that the old model of pursuing only the business of low-margin, industry-standard products for their own sake was not going to continue to be as profitable as in the past.”

Since returning and moving his company away from its image as a maker of low-cost PCs, Dell has sought out strategic acquisitions that the company can spin into new profit centres.

“The kinds of companies we like to acquire are proven, but sort of unknown,” Dell said. “We’ll acquire about eight companies a year, and Dave Johnson [Dell senior vice president and chief of acquisitions] will have to look at about 250.

“The best companies are those we are already partnering with because we understand them and they understand us. We de-risk a lot of the acquisitions because we already know what we’re doing.”

EqualLogic, a new-generation storage company whose arrays and software fit right into the cloud-computing model, is a good example of what Dell does with its acquisitions: namely, magnifying their value into its 180-country sales network, and providing capital and personnel where required.

“When we bought EqualLogic [in 2007], they had about 3,000 customers; now they’re well over 30,000 customers,” Dell said. “We’ve had KACE for seven quarters; their business is now seven times larger than what it was before the deal.

“I don’t know if we can keep doing that—eight quarters/eight times bigger, nine quarters/nine times bigger — but we’ll certainly find out if we can.”

Dell’s Take on HP

During the interview, Dell was in an ebullient mood, which was understandable. A week earlier, his company’s biggest competitor in the personal systems business, HP, had announced its plans to leave the business entirely to focus more of its energies on software and services. (According to industry analysts Gartner and IHS iSuppli, HP is the No. 1 PC maker in the world, with about 17 percent of the market; Dell has 12 percent.)

Dell, a user of Twitter, chided HP that day with this tweet: “If HP spins off their PC business … maybe they will call it Compaq?” He was referring to HP’s controversial 2002 acquisition of that PC company.

“What an opportunity for us, no question about it,” Dell said. “While we are moving into software and services, we are going to continue to grow our PC businesses, as we know we can.

“Remember, this [global IT] is a $3 trillion business, and we think there are fabulous opportunities all through it. People are going to continue to use PCs [in various forms] for a long time to come, even though there are a lot of other good new devices out there.

“I know a lot of good people at HP, and you don’t ever want to wish anybody ill. HP has been a very successful company for a long time. But they do seem to be having a tough go right now. Businesswise, of course, it’s very good for Dell and our shareholders. So you have to look at it first from that standpoint.”

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