Has Dell Got The Winning Ticket To The DT Sweepstakes?
A significantly larger and much deeper-in-debt Dell has packed up the inaugural Dell EMC World event — 8,000 attendees — and will hold DEW2 next May in Sin City (or as I call it, Lost Wages). With the just-completed acquisition of EMC, the new enterprise business, Dell EMC, is the largest enterprise storage and server vendor, but while storage capacity and server unit shipments continue to soar, prices and margins continue to erode.
In addition to the IT industry’s largest debt load, Dell added significant resources in enterprise storage (EMC), virtualization (VMware), cloud (Virtustream, Pivotal and ECS), networking (SDN/NSX), all-in-one appliances (VCE) and security (RSA). The company also has investments in 150 companies for future technologies.
It moved into top spot in server shipments for the most recent quarter, while EMC tied for first place with HPE ($1.6 billion each) in enterprise storage, with Dell in third place. In total, Dell claims leadership in 20 Gartner Magic Quadrants, but where is the growth and profitability going to come from? At DEW 1.0, the company called out digital transformation (DT or DX) as its future, while beefing up its present with a variety of cloud, appliance, analytics, security and flash announcements.
“I say we’re going to be the trusted provider of essential infrastructure for the next industrial revolution,” said Michael Dell in his keynote. We’re facing “the sunrise of a new era… digital dawn” and the opportunities are huge, he added. Or as GE’s CIO put it in a video at the show: “You go to bed an industrial company and wake up as a software and analytics company.”
Technology is undergoing sweeping changes as a result of cloud, analytics, software-defined everything, Internet of Things, mobile and social, and these technologies/applications are helping to drive the digital transformation impacting every aspect of our lives. Dell is now the biggest enterprise IT vendor offering the broadest portfolio of hardware, software and services, while its two closest competitors fall further behind. IBM continues to struggle with growth while HPE continues to struggle with its smaller-is-more-agile-and-therefore-more-relevant philosophy. “At Dell EMC World you’re getting a look at the next great technology company,” said Dell.
David Goulden, President and Chief Commercial Officer, Dell EMC, believes the company has first-mover status in both the datacenter consolidation currently driving the enterprise IT market, and in the emerging digital transformation. He also believes Dell is best-positioned because of its size and breadth.
“We don’t see many customers say I want more partners.” They want fewer, more capable IT partners, not a bunch of point product vendors. He calls Dell EMC and its DT focus “a game changer.”
Other vendors will have to address both DT and Dell’s resources, he added. We haven’t seen “shrink yourself to success.”
In addition to cutting costs through eliminating duplicate resources as well as leveraging IP and supply chain efficiencies, Dell has a number of readily available opportunities for growing revenues. Of the top 10,000 customers, there is only a 20% overlap, said Bill Scannell, President, Enterprise Sales, Dell EMC, together with a 60% overlap in partners. So Dell and partners have 8,000 large customers to sell the rest of their portfolio to.
The combination also appears to make the new entity more attractive to customers, according to Marius Haas, President and Chief Commercial Officer, Dell EMC. In the last few days they were involved in 9 very large financial services cloud competitions, and “we went 9 for 9”.
I polled several analysts — Charles King,Pund-IT, Inc., Mark Peters, Enterprise Strategy Group, and Rob Enderle, Enderle Group — for their thoughts on Dell EMC’s prospects. The questions — and their answers — follow.
Does Dell have the ‘right stuff’ — products, services, resources and strategies — to profitably address the IT needs of enterprises?
King: I believe it does. Though the company had sizeably increased the number of its offerings appropriate for enterprise customers prior to the deal, the addition of EMC’s storage, converged systems and services delivered an order of maginitude jump in the size and quality of that portfolio. Plus, with its endpoint product families in mind (and given the spinoff of HP fom HPE) Dell can rightfully claim to be the market’s most comprehensive, integrated end-to-end enterprise IT vendor.
Peters: Certainly Dell has a pretty compelling mix of the “right stuff” to address enterprise IT needs. As to whether it can do so profitably we will have to divine/guess, since it is not obligated to tell us!! I am sure it will assert profitability but it could be some time after that we can really know whether or not that is so. However, at the kind of scale it now has (both on the supply side and the broad GTM side) one would have to imagine that even if its extensive range of products were only “OK” (and I think that they are mainly rather better than that) then DellEMC is going to have market success. Don’t forget however that this is predicated on the “IT needs” which Dell EMC seeks to serve – i.e. to the “trusted vendor of essential infrastructure…” rather than a complete one-stop IT behemoth
Enderle: For the most part they do the combination of in house capability and functional partnerships is unprecedented in the current age but that doesn’t mean they don’t have exposures. They are largely blind to Smartphones and need a stronger partnership to close that gap and the rise of firms like Amazon are changing the overall enterprise dynamic dramatically. Fortunately most still buy from companies like Dell but both Google and Facebook often do not and they likely represent the greater risk. This idea of doing it yourself, while rarely effective in the past largely due to a lack of economies of scale, is once again in play with these massive companies which represent internally a scale we’ve never seen before. Assuring firms understand the value of working through Dell Technologies, rather than attempting to cut costs by going around them, will be key to making sure Google and Facebook remain outliers and not the new standard. Dell gets this and has factored it into their strategy but it still remains one of their largest risks.
What is the biggest opportunity/threat facing Dell over the next 12 months?
King: On the opportunity side, Dell has the assets, tools and partnerships in place to become a leading hybrid cloud vendor, an area where many competitors talk a better game than they play. Dell is obviously focusing on that market but if it succeeds it should position itself as a leading player in associated markets, like big data and IoT (or IoE “Everything” as Michael Dell noted in his keynote). So far as threats go, most of those I can think of relate to unpredictability and instability, particularly in markets and economies that are critical to the company, like the U.S. and China. The large amount of debt required to complete the EMC deal means that a major economic setback or meltdown could have a deliterious effect on the company
Peters: One word answers both: Execution!
Enderle: Oh, opportunity: this is likely to take massive share from HPE who is struggling with a CEO who’s strategy appears to be to sell the firm off for parts.
DISCLAIMER: A former Dell and EMC shareholder, I’ve still got some shares of VMware.