Dell reported its third-quarter earnings yesterday, and reactions to the news generally made for grim reading. The company cannot help but know that it faces a serious dilemma: It must continue an aggressive shift into enterprise solutions while propping up a punch-drunk personal-computer business that is staggered, bloody, and all but beaten.
The word “dilemma” is particularly appropriate in this context. The definition of dilemma is “a situation in which a difficult choice has to be made between two or more alternatives, especially equally undesirable ones.”
Dell seems too attached to the PC to give it up, but in the unlikely event that Dell chose to kick to the commoditized box to the curb, it would surrender a large, though diminishing, pool of low-margin revenue. The market would react adversely, particularly if Dell were not able to accelerate growth in other areas.
While Dell is growing its revenue in servers and networking, especially the latter, those numbers aren’t rising fast enough to compensate for erosion in what Dell calls “mobility” and “desktop.” What’s more, Dell’s storage business has gone into a funk, with “Dell-owned IP storage revenue” down 3% on a year-to-year basis.
Increased Enterprise Focus
To its credit, Dell seems to recognize that it needs to pull out all the stops. It continues to make acquisitions, most of them related to software, designed bolster its enterprise-solutions profile. Today, in fact, it announced the acquisition of Gale Technologies, and it also announced that Dario Zamarian, a former Cisco executive who has been serving as VP and GM of Dell Networking, has become vice president and general manager of the newly formed Dell Enterprise Systems & Solutions, “focused on the delivery of converged and enterprise workload topologies and solutions.” Zamarian will report to former HP executive Marius Haas, president of Dell Enterprise Solutions Group.
Zamarian’s former role as VP and GM of Dell Networking will be assumed by Tom Burns, who comes directly from Alcatel-Lucent, where he served as president of that company’s Enterprise Products Group, which included voice, unified communications, networking, and security solutions.
Dell has the cash to make other acquisitions to strengthen its hand in private and hybrid clouds, and we should expect it to do so. The company would have more cash to make those moves if it were to divest its PC business, but Dell doesn’t seem willing to bite that bullet.
That would be a difficult move to make — wiping out substantial revenue while eliminating a piece of the business that is a vestigial piece of Dell’s identity — but half measures aren’t in Dell’s long-term interests. It needs to be all-in on the enterprise, and I think also needs to adopt a software mindset. As long as the PC business is around, I suspect Dell won’t be able to fully and properly make that transition.