Dell Aims to Plow Ahead with Acquisitions and Services Growth
IDEAS recently met with Joe Kremer, the Managing Director of Dell for Australia and New Zealand, for a presentation to a small group of press and analysts. During the talk, Mr. Kremer covered both local and global issues, reviewing the previous year and projecting what we might expect from Dell in 2011. The discussion touched on a broad range of topics, some of which are worth summarising here.
Dell was founded on consumer roots, but over the past few years the company has focused increasingly on gaining traction in the enterprise. For many in the IT industry, that may not be news, but there are still a lot of people out there who don’t associate with Dell in this market segment. An interesting statistic provided by Mr. Kremer that illustrates how much of a shift has happened in Dell’s business is that its worldwide Consumer (or Home) revenue is just 13 – 14% of the company’s overall revenue today. He also talked about some of the growth figures for its enterprise business in Australia, and while not quoting actual revenue or billings numbers, he noted that in the nine months from February to October 2009 (Dell’s Q1 – Q3), the Small & Medium (SMB) business recorded growth of 27%, Public Sector 31% and Large Enterprise, 40%.
On its path to re-invent itself as an enterprise player, Dell is trying to grow its services capability significantly. This effort got a big leg up with the acquisition of Perot Systems in 2009, and today Dell’s services business is around $8B, employing approximately 43,000 people (or nearly half its global base of 96,000 employees in 2010). By comparison, IBM‘s Global Services Business has approximately $59B in revenue, and around 190,000 employees. However, the size of Dell’s organisation is certainly much larger than it was even just a few years ago, and according to Mr. Kremer, it will continue to grow in 2011.
In a previous story, we looked at the extensive experience with large data centres that Dell has gained through the work of its customs systems Data Center Solutions (DCS) group. Mr. Kremer shared some additional information on the current extent of this business, revealing that 21 of the 25 largest data centres in the world “run on Dell”. With the purchase of Perot Systems, Dell also acquired data centre outsourcing capabilities, and Mr. Kremer disclosed that Dell now manages 25 outsourced data centres worldwide, with plans to “aggressively” grow this business.
It is interesting to note that as a 25 year old company, Dell made just two acquisitions in its first 22 years. That pace has recently accelerated, and in the last year it has made 10 acquisitions, including three in the last month alone.
Growth through acquisition is still high on Dell’s agenda for 2011, and according to Mr. Kremer, its acquisition strategy will be driven by the following objectives:
1. Obtaining additional services capacity, especially in specific countries where it sees an opportunity for growing its presence;
2. Acquiring Intellectual property (IP) that currently has a small footprint in the market, which Dell can grow by distributing it globally at mass-market economies of scale; and 3. Acquiring point products to help fill out its product line in key segments. Hardware
Finally, on the hardware front, Dell continues to invest in growing its hardware portfolio, focusing in particular on building out its storage offerings. When Dell acquired Equalogic in 2008, it was around a $100M business, and according to Mr. Kremer, its revenue today is up to around $1B. This is a good example of Dell buying “small”, and then driving growth by globalising the business using the well-known Dell brand.
It missed out the opportunity to apply this approach with 3PAR after it lost a bidding war to acquire that company in 2010, but it recently announced its intention to acquire Compellent, so we can expect Dell to push hard on driving Compellent’s technology into the mainstream. Mr. Kremer told the gathering that he also expected Dell to pick up EMC’s recently announced products. At the time of writing this story there has been some discussion on the future of the Dell and EMC relationship. See the following CRN article for an overview of the situation.
IDEAS Bottom Line
Interestingly, while Dell’s competitors increasingly emphasise the benefits of deploying vertically integrated stacks, Dell continues to tout the openness of its solutions, which gives customers the ability to mix and match components and thus avoid vendor lock-in. At the same time, Dell can deliver increasingly integrated solutions through its growing services capabilities.
This message is sure to resonate with many customers, and it will give Dell a meaningful way to differentiate itself from some of its very formidable competitors. Reinventing itself as a services provider is not going to happen overnight, but Dell is certainly progressing down that path. In the meanwhile, its approach of buying IP from small companies and then using Dell’s global presence to accelerate the business will continue to pay off well in the key product segments that it is targeting.
By Gary Burgess
Gary Burgess is SVP Research & Operations at Ideas International and specialises in IT hardware research, including features, performance, Green IT, and pricing as well as IT Infrastructure Support Services research.
Ideas International Limited (IDEAS, IDE:ASX) is an analyst company that provides enterprise IT research, insight, analysis, and tools to both the buy and sell sides of the industry, counting as clients many large technology vendors and major blue-chip global IT users. More information at www.ideasinternational.com