Whichever way you slice it, the last 12 months have not been kind to PC giant Dell. The vendor, famously founded by the eponymous Michael Dell in his Texas dorm room nearly 30 years ago, in 2013 laboured through what Forbes described as “the nastiest tech buyout ever”, while seeing its market share slump and its profits dwindle.
For Dell’s Europe, Middle East and Africa (EMEA) president, however, there is a light at the end of the tunnel. In an interview with INN Live, Aongus Hegarty explains that the company is midway through its transition from a PC builder to a provider of “end-to-end solutions” that encompasses mobile devices, security, software and data centre services. In theory, the move will not only create new, more lucrative revenue streams for Dell, but allow it to better compete with industry titans such as IBM, Hewlett-Packard and Oracle.
Hegarty is the first to admit that Dell’s evolution has been a challenging one and, to a degree, has been exacerbated by some of the recent trends that have swept the industry, such as the shift from desktop PCs to mobile devices and the push towards cloud computing.
“Our market, the technology industry in a broader sense, is constantly going through transformation and change,” he points out.
That is one way of putting it. According to the latest third-quarter figures from IT industry watcher International Data Corporation (IDC), the global PC market is shrinking at a startling clip, with overall shipments down by 7.6 percent to just 81.6m units.
To make matters worse, Dell is also losing in this space, with its market share trailing behind Hewlett-Packard and China’s Lenovo.
Despite the grim reading, Hegarty attempts to remain upbeat. “Yes, PCs in their current period are slowing down. That said, there’s hundreds of millions of PCs shipping ongoing on a quarterly basis and annually, so there’s still a significant market for PCs. It’s not as large as it was last year, and it’s declined on a year-on-year basis,” he says.
Industry analysts have offered various theories for what appears to be a terminal decline in the desktop PC market, ranging from a broader move towards mobile devices such as tablets and smartphones, to customers delaying investments due to the perceived unpopularity of Microsoft’s new operating software Windows 8.
Either way, the trend is a worrying one for Texas-based Dell, which, of its $14.5bn in quarterly revenue, derives fully $9bn from its end-user computing division, which produces its desktop and laptop computers.
Based on this evidence, Hegarty’s eagerness to talk up Dell’s push into newer areas like storage, networking and data centres makes sense.
In recent years, the company has spent approximately $13bn on snapping up other technology providers, such as security specialist SonicWall and systems management firm KACE Networks.
These acquisitions, Hegarty says, are broadly in line with Dell’s strategy of turning itself into a one-stop shop when it comes to clients’ IT requirements.
“From a broader perspective on strategy, we’ve been transforming our company over the last three or four years consistently towards an objective of being a true end-to-end technology solutions provider to our customers,” he explains. “We’re actually a long way down that journey.”
The reasoning behind this, Hegarty continues, is that for years companies have been struggling with the growing complexity of their IT environments, which have become sprawling and unwieldy as companies produce more data, increasingly use outsourcing and adopt newer and ever more complicated technologies.
These issues are only becoming more prevalent as technology takes a more and more integral role in the day-to-day operations of companies.
Dell believes it is the company to take away all of this hassle by not only providing a company with all of the hardware it needs, but also taking on responsibility for integrating it, securing it and managing it.
“Every time I travel, in my customer meetings in Abu Dhabi and in my customer meetings in Dubai, they’re more and more looking at technology being an enabler for their business, but they’re struggling with the complexity of it,” Hegarty claims. “They’re struggling with the fact that many [IT] companies have capabilities in certain elements, but we have a very unique proposition in the industry in being able to provide them with an end-to-end technology solution.”
As the well-known idiom goes, if you shop around you are more likely to get the best bargains. However, Hegarty disagrees, arguing that Dell can supply its clients with the complete technology environment and still achieve a total lower cost of ownership than its industry rivals.
“[We’re] taking that technology and integrating it, converging it and building it into true solutions. In terms of data centres for example, we’re delivering the most cost effective in energy, easiest to maintain, lowest total cost of ownership, highest efficiency and output,” he claims.
Despite Hegarty’s claims, however, the fortunes of this strategy appear to be mixed, according to the company’s recent financial disclosures. In the second quarter, its services revenue was predominantly flat showing just a 2 percent uptick to $2.1bn, while its enterprise solutions unit, which sells data centre technologies, saw sales rise by 8 percent to $3.3bn. Meanwhile, its software division made an operating loss.
Hegarty, however, remains optimistic. “It’s resonating very well. The results we’ve seen in the market place with independent things like IDC around our growth with the share we’re taking and the progress we’re making,” he says.
Part of Dell’s plan to fast-track this transformation has seen it end its 25-year stint as a publicly-listed company.
The history of the high-tech industry is dotted with hostile takeovers and acrimonious splits (Steve Jobs’ firing as CEO of Apple is among the most legendary), and the most recent shift in Dell’s ownership will take its place among such lore.It all started in January 2013, when the company revealed that it had struck a leveraged buy-out deal worth $24.4bn headed up by chairman, CEO and largest shareholder Michael Dell and private equity firm Silver Lake
Partners, with Microsoft chipping in a $2bn loan. The deal represented the biggest technology buy-out ever and by far the largest leveraged buy-out since the 2007 global financial crisis.
Carl Icahn, whose holding firm Icahn Enterprises was a large shareholder in Dell, quickly opposed the proposal, claiming Dell’s and Silver Lake’s offer did not represent a high enough premium on the company’s share price.
Icahn, a billionaire activist investor, wasted no time in proposing an alternative transaction.
The spat turned ugly, with Icahn penning a number of sharp-tongued letters and Twitter posts as he demanded a court-ordered appraisal of his shares in Dell. At one point, the outspoken Icahn compared the computer company’s board to a “dictatorship”.
Nevertheless, in September the firm’s board voted in favour of the Dell offer, with the $24.89bn deal to take the business private being confirmed a month later.
Hegarty says that the transaction will provide Dell the relief it needs from public scrutiny in order to accelerate its transformation behind closed doors.
“[Being private] will accelerate our transformation further and allow us to make decisions in the short-term more often, and it will allow us to invest in the right decisions for the medium to long-term,” he explains.
There are further pressures the company faces, though. Dell does not break out its financial performances on geographical terms, but Hegarty admits that the EMEA region has suffered somewhat as a result of the various financial crises currently seen in a number of eurozone territories.
“There’s an economic factor within the European market. It’s been depressed from an overall GDP perspective for some time, so that’s one factor,” he concedes. “GDP growth has an economic impact from a business perspective and a consumer perspective. We’ll have to see how the economics play out, we can’t influence those elements but we continue to monitor [them].”
Hegarty paints a rosier picture for the Middle East though, which is playing an increasingly important role as an emerging market for the company. “There seems to be a bit of a step back, or rebound in growth in the UAE and wider Gulf region. We’re seeing that,” he reckons. “Our investments in the UAE and Middle East are based on our beliefs that this region will grow strongly over the next number of years. The indications over the short term are that that’s under way already here in the region.”
Hegarty declines to give specifics on how much Dell is willing to invest in the region, but outlines what he describes as “double-digit growth” for the market.
Dell’s commitment to the region is underscored, he says, by a recent move to a new, larger Middle East headquarters in Dubai at the tail-end of 2013, as well as the opening of a solutions centre, which allows customers to test the proof-of-concept of Dell technologies in addition to providing new training opportunities for staff.
“The team here has really grown and developed and we made a decision about nine months ago that we wanted to move into a new phase of investment in our business in the wider Gulf and the UAE,” Hegarty explains.
Much of the upcoming investment in the Middle East, he goes on, will focus on bringing recently acquired capabilities to the local market, such as security technologies by SonicWall. “When we acquire a software company or a security company, often their presence in the Middle East is not as strong, but a lot of the investments we’re making are in bringing those capabilities and that breadth of portfolio to the market,” Hegarty adds.
Few can predict how successful Dell will be in transforming itself amid tumbling sales, boardroom bust-ups and an industry that is changing quicker than ever. For Hegarty though, this unpredictability is just about the only thing you can count on. “The one thing you’re guaranteed is change is a constant in our industry, but we’re focused on staying ahead of that change,” he says.
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