Dell's PC strategy: Damned if it does, damned if it doesn't

Dell's PC strategy: Damned if it does, damned if it doesn't

Summary: Dell faces a PC conundrum. The company isn't playing the commodity PC game and losing share and desperately needs to grow other parts of its business to offset the declines.

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TOPICS: Hardware, Dell, PCs
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Dell is stuck in a vice with its PC business. On one side, Dell has decided to focus on margins and stay away from the commodity PC game played by Asia's juggernauts. That business decision is entirely logical. The problem is that Dell's market share is eroding quickly and the company needs the PC business to work so it can transition its business to software and cloud infrastructure.

If Dell's PC business wasn't collapsing its plan would work well. However, the PC business isn't cooperating. Also: Dell: Q3 misses, cites 'difficult global IT spending'

Among the problems:

  • Dell's PC units fell 12 percent in the third quarter from a year ago.
  • The company isn't focusing on low-end systems, which is keeping it out of emerging markets in many respects.
  • Laptop sales are falling and notebook revenues was down 26 percent in the third quarter.
  • As Dell's market share erodes so does the scale needed to make any money.
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Evercore analyst Rob Cihra said:

We see structural hurdles unchanged, including our belief that while it walks away from pricing Dell still needs PC scale/channels for any enterprise transition to work, and either way seems unable to fill up the enterprise side of its revs tub as fast as PCs drain out the other.

HP faces the same issue as Dell. HP decided to play in the low-end of the PC market and defend share---even though Lenovo is now tied or in the lead depending on whether you use IDC or Gartner data.

Dell executives said they are sticking with their PC plan, but the business is taking on water. Ultimately, Dell wants to be more than a PC company. The catch is it needs a graceful exit that doesn't seem to be coming.

Barclays analyst Ben Reitzes said:

Dell seems to be facing a challenging PC market as tablet cannibalization—even in corporate markets—and a pause for Windows 8 have led to significant shipment declines. Checks indicate significant market confusion around Ultrabooks & Windows 8. While acknowledging an attractive valuation, we remain cautious long term as the company manages through a challenging transition away from PCs toward enterprise solutions.

The Dell's PC strategy is worth watching, but the company may be screwed for quarters to come when it comes to revenue growth.

Also: Dell, HP and the folly of the consumer PC business

Topics: Hardware, Dell, PCs

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25 comments
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  • Not too clever (Dell, not the author)

    "Dell has decided to focus on margins and stay away from the commodity PC game played by Asia's juggernauts."

    "The problem is that Dell's market share is eroding quickly"

    Well, Dell is Dell is Dell. Their products have a certain brand image, reputation and place in the market. So they decide to charge more and "focus on margins" and then sales tank?

    What a shocking outcome. Have they ever heard of demand curves?
    D.T.Long
  • The PC market will still be there

    Just less of it. Not everyone needs a workstation or laptop for their computing tasks these days.
    Alan Smithie
    • But they can have that...

      ...with the low-end that Dell is vowing not to compete. In most cases, a laptop is still a more practical tool than a tablet, and there are many laptops on the market for less than an Ipad or Surface. I've not noticed any sort of broad corporate interest for any of the Android tablets as a laptop replacement.

      My company still buys Dell laptops as a corporate standard, but we would buy more of them if the price was less. We are still repairing and rehabbing 7 year old D610's for some of our more unfortunate users. The number of users requiring higher-end machines is trivial, although in most cases this is just a current (E6430) with 8GB RAM instead of 4GB. At some point, the geniuses in purchasing will figure out that we can make 50% more people happy by switching commodity suppliers. With more than 30,000 workstations in North America alone (double that, worldwide); most still need a computer, but a low-end one will suffice. It's interesting that Dell once acquired a boutique company (Alienware) to boost their reputation on the high end. Now it seems they are endeavoring to become a boutique company themselves.
      jvitous
  • When everyone has as many computers as they need, demand slows down

    I have bought a Dells in the last 3 or 4 years, the last two within the past 12 months. Despites bumps in the road, Dell computers are, on the whole, a high quality product and every time I've wandered off into the land of "cheaper," I've been sorry. But many people, I suspect, like me, just have enough computers for the forseeable future. I'm not buying tablets or replacing my desktops with Android or iPad or Chrome or anything else. I simply have all the computers I need and because I bought at the high end, these are going to -- barring accidents -- last some years. I dislike Windows 8 with a passion, even more than I hated Vista, so I'll be waiting until Microsoft offers something that lets me do the things that I need to do -- writing and photo-editing. Tablets are playthings. People keep saying that tablets are replacing standard computers. No, they aren't. It's just that people are buying what they don't have. I have a tablet. It isn't going to replace either my desktop or laptop or even my notebook ... it's something else: small, highly portable and good for various media from movies and music, to audiobooks and reading. If I want to edit photos, I go to my desktop and Photoshop. If I'm going to write anything more than a couple of sentences, I go to any of my computers that has a keyboard and mouse. So does everyone else I know. We aren't buying computers because we don't need any right now ... and Microsoft latest OS is so not what I want or need that even were I inclined to buy another computer, I would wait. I hope Dell figures out a good survival strategy. For those of us who actually work on computers, they have always been the work horses on which we depend to get our jobs done. There isn't anything on the market that I prefer. I just don't need another computer. Many people are like me.

    The tablet market will fade too once everyone who wants one has gotten one. No market is unlimited. There is a saturation point. It's happened with every piece of technology.

    Not everyone EVER needed a workstation or laptop ... but anyone who does actually works ... from development, to writing, spreadsheets, photo or film editing -- anything more real-world than email, social media, and messing around needs a "real computer." I shudder at the thought of trying to do the things I need to do on a tablet. It's an appalling idea. This is true for pretty much everyone I know. We all have a tablet too, but it's not a replacement ... it's just a cool toy and good for travel if you don't work while on the road.

    Be careful how you interpret the numbers. A lot of assumptions are being made about what they mean that are not true. You notice that although the iPad is the hot item, Apple hasn't stopped making Macbooks. They at least recognize that though the markets may overlap, they ARE different markets. New things get bought because they are new ... then, like everything else, sales will slow, then level off. I've been predicting market trends for 40 years, interpreting the number using commonsense, logic, and a real life knowledge of how people work -- something professional prognosticators apparently don't consider.

    I have been right 100% of the time, from when the dotcom bubble would pop, to when desktop sales would slow, to the current passion for cool tablet gadgets. Two years from now, watch tablet sales flatten. Within 5 years -- maybe sooner -- tablets will sell like PCs and other "real" computers are now. If the economy perks up, people will make their deferred purchases. You'll see a spurt of sales followed immediately by a far reduced sales curve for all the gadgets that are driving the market right now.

    Consumers are not are not stupid and blind. Why you assume that people are abandoning their computers because they are buying tablets, I don't know. Have you actually asked around? Talked to people who use these various tools, learned howand when they use them? It's not what you seem to think ... not even close. If you only talk to each other, you will continue to be very far off the mark.

    Nothing is forever, especially in marketing. I hope Dell can survive the curve.

    But all of ou need to stop living in your own little worlds where numbers exist without any people attached. There is no such thing as an endless market. New things sell better than things everyone has ... it's obvious -- so you can't see it. It's only a matter of time before the tablet market saturates. It's not a matter of if ... just when.
    MAR0311
    • Typos

      5 Dells in the last 3 years
      MAR0311
  • Each Device for Its Own Use

    YOu're right -- tablets are great for minimal usage (and lots of web action) on or off the road, but not good yet) for serious work. I wouldn't bet on tablets not improving to be more serious machines -- there may yet be something between a tablet and a small laptop.

    Remember, for many business users, their company doesn't want to support more than one device per user.
    amywohl
  • Kitchen to hot?

    .
    .
    "IF" Dell is loosing income... instead of moving to Mexico, why not just move to china? Workers are pain in rice not monetary denominations.
    Once that move happens, Dell can make (last 1 week? 1 month? 1 year?) 'Throw away'' products.
    OR.......................
    Dell can become a world seller?
    They are you say? . . .
    NOT doing a good job of that I guess.
    .
    .
    fm-usa
    • words and more

      I presume you mean too hot, losing money, paid in rice, etc.

      Dell has several government contracts, seems to me that should do something for them. Then of course, the government is overspending its pocketbook to the tune of trillions per year.
      dhays
  • Surface

    Why can't Dell come up with something people really want? If they can't, why should I (continue to) buy from them?
    WebSiteManager
  • If Dell wants to leave the

    Low end market, they need to differentiate their product in ways that go beyond chipsets and performance.
    baggins_z
  • Dell's ups and downs

    Back in the late 90s, Dell was spiraling down. Quality was shoddy, customer service was almost non-existent and all the sudden, they came back up, then took another nose dive mid-2000 and now, I'm not where they are exactly. One thing is for sure, Dell has lost its brand appeal. They bought AlianWare if I recall well but what did they do with it? They followed the same tired and destructive route MBAs have been taught, diluting a great product in a sea of so-so computers. Indeed, dam if you do, dam if you don't...
    33Nick
  • What a surprise!

    There is so much wrong with Dell these days: from branding (XPS line, Alienware), to pricing, to lackluster hardware...

    But my favorite is the sales mess. In the past year, Dell has reorganized its sales department more than once, and the turnover has been absolutely unbelievable (for example, we have a problem with one of our orders, but it was placed literally seven (yes, SEVEN!) reps and five managers ago. I used to have a single Dell rep on a speed dial, for a couple of years at a time -now, thanks to one of recent reorganizations, I have to deal with fourteen reps (and they seem to be around for about six weeks). Well, for all intents and purposes the fifteen-year relationship is down the toilet. So the sales are down. What a surprise.

    Bottom line - Dell is facing a perfect storm: they alienated corporate buyers with endless sales reorganizations and otherwise cannot compete either on price or on quality (Dell ultrabook/tablet/phone, anyone?).
    nikola@...
  • Michael Dell the Pontificator

    Back in 2010 Dell pontificated that business would improve in 2012. Did he really mean 2112 or 2212?
    Maybe Michael needs to step down; things have changed since he sold PC parts out of his room at UT. Dell is a one-trick pony
    ebhb2004@...
  • Windows Is A Dead-End

    With PC sales flatlined or declining, PC vendor profit margins shaved razor-thin, and Microsoft desperately floundering with no clear sense of direction, it is clear that innovation has deserted the Windows market. Instead, mobile is the new hotness, and Android is the hottest of the hot.
    ldo17
    • I see you're still living in an alternate reality, fantasy world.

      Or perhaps you're the modern version of Rip Van Winkle, who hasn't noticed the current state of the technology world yet.
      adornoe
  • They have no strategy!

    I read your article expecting to read about a new strategy, but there is none! They are going to continue to do the same old thing.

    Dell needs an inexpensive touch screen laptop with a hinged display running Windows 8 that competes with the tablets. Yet they have not adopted a strategy that focues on the touch screen, other than some big displays, although the S2340T is a touch screen that folds into a table which is cool, but where is the demand?

    Without a touch screen strategy, Dell is dead.
    PositiveMojo
  • What Dell does best...

    ...is giving the customer lots of options. They should play that up in their advertising, and as long as MS is going to sell its own hardware anyway, I think they should be a bit more assertive about making naked computers (or maybe even Linux preloads) available to customers who want them.
    John L. Ries
  • words

    "Dell is stuck in a vice with its PC business." Vise is the word you are looking for, vice describes something such as prostitution or gambling--ever heard of the vice squad?
    Vise is the tool that holds things.
    I didn't read any further.
    dhays
    • Vice can be substituted for vise, and vise is the one with the mulitple

      meanings, including the one you described.
      adornoe
  • Windows PCs are only 40 percent of client devices sold

    If Dell wants to focus on the smaller portion of the pie they are going to have trouble.
    symbolset