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Dell chief Kevin Rollins has said the company is looking to go into a more "risk-oriented mode". Why is the move being made and what will it mean?
Dell chief Kevin Rollins got everyone’s attention when he said at the Goldman Sachs technology conference that his company had been too conservative and was going into a more "risk-oriented mode". At the same time Rollins admitted that Dell’s forecast of 6-9 per cent revenue growth for the current quarter is below the firm’s long-term targets.
So what exactly will moving into a riskier mode mean? Well, it would appear to be in response to Dell’s staple strategy of entering markets late and looking to dominate, so perhaps the new Dell strategy will involve leading the way from the off. That view certainly has support in the analyst community.
Gartner Group’s Ranjit Atwal said: "Dell has always been a follower of technology rather than leading it, so maybe it is accepting, as the number one vendor in the world, that it needs to be more aggressive in bringing technology to market. It traditionally only moves forward as and when all the pieces of the model are in place, maybe it now needs to find ways of developing channels to market. Going indirect-
IDC analyst Randy Guisto agrees that while Dell’s business model has always been aggressive, it is on the product side that it has been too conservative. "This is ingrained from the days when Dell loosely used the term ‘relevant technology’," he said. "There have been a few breakaway areas from that mode, but Dell tends to look for markets about to pop in volume, where it can make good money at lower margin. It typically lets others define the segment, spend the money to develop, then comes in and dominates in volume, dragging prices down and driving vendor consolidation and segment departures. It’s its version of being a predator."
Certainly a move into a more risk-oriented mode would fit nicely into a market that is bulging with new opportunities with areas such as WiMax, digital home, 3G networks and mobile gaming etc. "This is the right decision from Dell. The competitive dynamics have been ratcheted up," Guisto added.
While no particular incident appears to have sparked Dell’s change of strategy, it is easy to point to the slowdown of growth in the US market and even a simple realisation that a change of tack would be beneficial. "I think it’s waking up to the fact that it’s perceived as a technology aggregator and box provider. It has really tried spinning the message that it’s focused on solutions and is not just a PC company. This was a big message at its financial analyst meetings. But I’m not sure the street is buying it," Guisto said.
Talking to German newspaper Süddeutsche Zeitung this week, Rollins was bullish on figures and how he sees the industry developing. He believes the company’s goal of $80 billion in sales can be surpassed and it can reach $90 billion to $100 billion.
In addition, he also said he believes the list of casualties as a result of the PC price war will continue to grow with itself, HP and new global player Lenovo Group being part of a small group of major companies that will survive the consolidation phase.
Interestingly, Dell’s re-evaluation of its strategy comes at a time when HP has been earning improved notices with CEO Mark Hurd, just a year into the job, being hailed as something of a saviour. The appointment of Hurd as Carly Fiorina’s replacement looks more and more inspired as the quarters roll on. At the time of his naming as Fiorina’s replacement, a number of analysts expressed surprise at the choice of Hurd as he was chief of the much smaller NCR. His relatively low-key style also paled next to the slick dynamism of Apple’s Steve Jobs, Oracle’s Larry Ellison or even Fiorina herself.
Nevertheless, in what appears to be a classic case of finding the right tool for the job, Hurd has proved to be a perfect fit thus far and has certainly given Dell increased food for thought. Guisto said: "Hurd did a remarkable job internally his first six months. HP has made huge strides in draining waste and cost out of operations. He had to do that first before rolling out the grand marketing and technology and services plan. He did this in December and now I think HP can turn the screw. It’s broad and deep in many segments, has a global services play to take on IBM and is deep in enterprise and consumer."
So, with Dell’s risk-oriented strategy, a rejuvenated HP and new kid on the global block Lenovo, will there be room for the other players in the long term?
Guisto thinks so. He added: "They are the only ones with global reach and either cost efficiencies or services plays and can penetrate enterprise, small business and consumers. The other vendors are already niche players, but there is nothing wrong with that either. Many niches can be profitable at low volume. The market doesn’t need more than three 800lb gorillas."
