Handling the hardware market

Dell senior executive Joe Marengi outlines how the company is placed to improve its bottom line in relation to competitors

In between sessions and keynotes at Gartner Symposium ITxpo 2003, ZDNet's editor-in-chief Dan Farber and executive editor David Berlind had a chance to catch up with Dell Americas senior vice president and general manager Joe Marengi.

Marengi, formerly the president at networking solution provider Novell, was in the mood to discuss the industry at large. As is usual for Dell executives, Marengi reminded Farber and Berlind of the keys to Dell's success and how those keys enable him to deliver benefit to Dell's customers. Marengi also hinted at some things to look for from Dell in the near term, and took a shot or two at his competitors.

ZDNet: Dell has cleaned up on desktops, notebooks, and servers. What are the gating factors in your other lines of business?

Marengi: Dell is about standards. Absence of standards in any one category ultimately hurts customers and slows adoption. Blades are a good example. HP has its own kind of blade. IBM has another. Sun has its own. If I'm a switch vendor, I don't even know how what size switch to make because I don't know what size rack it will go in. At the very least we should have some uniformity. It would be great to know what we have to fit in, but ultimately, it would be better to standardise on the architecture as well.

ZDNet: Are you referring to the backplane and what the blades fit into?

Marengi: Yes. The only differentiation should be in the speeds and feeds. The industry has to ask itself, "what's the best thing in order for end-users to adopt this?" I like to compare this to the tires on your car. Imagine what it would be like if each tire manufacturer had its own way for getting air into our tires. Our industry has to start looking at this from the point of view of the customers and the problems they want solved. Blades are a perfect example of where standards can solve a major problem. They're a great concept. But if we continue on the current path, we will retard the acceleration of blade growth. They have to be interchangeable.

ZDNet: Do blade standards really solve a problem for customers? Don't standards in a growth sector like blades really serve Dell's purposes? That's traditionally the sort of world that Dell -- because of its efficiencies in supply-chain and manufacturing -- operates in best, isn't it?

Marengi: Yes. But it's best for the customer too. I can plug any PC into any network. It shouldn't be a piece of hardware that's the differentiator. Software, service… those are differentiators. But it shouldn't be the hardware.

ZDNet: If that's the case, why haven't standards emerged for simpler problems that are older than the blade one; problems that exist in some of Dell's bread-and-butter categories. For example, power adapters for notebooks. This iGo Juice power adapter from Mobility Electronics, which charges notebooks and cellphones simultaneously, works for every notebook and cellphone, but you have to order it with special adapters to match your specific equipment. There's an example of where standards could've helped a long time ago, but where no one has pushed because it doesn't affect any particular vendor's market traction.

Marengi: I agree. If that's a problem for customers, we should be solving it. You shouldn't need 27 different adapters to get electricity into your computer. The industry absolutely has to start looking at the way it addresses technology from the users' eyes. By the way, we just did a deal with Mobility Electronics and they'll be making those power adapters for us. [Editor's note: In other words, if you have a Dell notebook, you can leave the charger for your cell phone or your PDA at home. It's about time notebook manufacturers spotted this opportunity.]

ZDNet: So, what will it take to get a blade standard done?

Marengi: Intel. Intel is in the best position to drive a standard at this point. Intel can put the cooperative in place and everyone else would pretty much have to follow.

ZDNet: Surely you've suggested this to Intel.

Marengi: You'll have to ask Intel.

ZDNet: Dell's big enough. Why don't you lead the effort?

Marengi: We're working with partners right now. But I can't say who. I can say that there are host of standards bodies and groups that we sit on or are involved with. But none of it solves the problem created when the other three vendors -- IBM, Sun, and HP -- are in different camps

ZDNet: What about RLX?

Marengi: RLX is dead. Gone. They had a great concept, but went with the wrong chip. [Editors' note: Marengi is speaking of RLX's selection of Transmeta processors for some of its blade offerings. RLX uses Intel processors as well and the last time we checked, RLX was still open for business. That said, whether or not a small player can endure in a niche that the heavyweights take interest in -- what Marengi was really alluding to -- is always a valid question.]

ZDNet: Speaking of alternative processors, Dell has never officially ruled out AMD, but so far hasn't announced anything. Any news on that front?

Marengi: We're an Intel shop. Always have been. But, never say never. AMD is a good California-based company. The guy who runs it is my neighbour.

ZDNet: So, no interest in Opteron?

Marengi: We don't see a big adoption of Opteron taking place and adoption is what matters. You have to realise that to support anything new, whether it's hardware or software, takes great deal of investment. I can tell you that the [economic] cycle we just went through was not a time for casual investing.

ZDNet: And on the 64-bit front in general?

Marengi: Come take a look at our benchmarks any time. We've got 32-bit multiprocessor systems that are beating the 64-bit stuff hands-down. But when 64-bit's time comes, Itanium looks good.

ZDNet: Any thoughts on whether Intel will go the hybrid 32/64-bit route as AMD has with Opteron?

Marengi: Intel is there. I'm not saying that they have the technology ready or that I've seen it. But for them to put that technology into the marketplace would take a nanosecond.

ZDNet: Going back to the very first question on the various categories you're in…

Marengi: On client systems (desktops, notebooks, and workstations) and servers we're now bigger than IBM and HP combined. We're not No. 1 in storage though. There, our partnership with EMC and the selling of their Clariion stuff is going very well. Dell represents more than 10 percent of EMC's revenues.

ZDNet: How about merging with EMC?

Marengi: Makes no sense whatsoever. Why merge? We can work with them and other partners, and they can too. A merger wouldn't be best for the customers for either company. If we merged with EMC and some of our customers wanted Veritas, that would be hard. We have Veritas as part of our software and peripherals line, but we're also able to offer EMC.

ZDNet: Where else might there be consolidation? Who's on the bubble?

Marengi: Forty percent of computers sold are sold by non-branded companies. So there's some room for consolidation. But, will it consolidate under us (Dell, IBM, and HP)? Probably not. Then, there's Sun with $5bn (£2.94bn) in the bank. Flip a coin there.

ZDNet: Gateway?

Marengi: Gateway is not a computer company anymore. Right now, they're making their name in plasma TVs. If you want to spend under $3,000 for a plasma TV, then Gateway is the place to go. But in the spaces we play, we don't run up against them in competitive bids.

ZDNet: Where else does the Dell model apply?

Marengi: MP3 players. Have you seen our MP3 player yet? It should be very disruptive to the market. It's amazing what you get for the money. We have our own music store queued up. The whole thing is ready to rock and roll.

ZDNet: Is there any more room to squeeze more profit out of the model?

Marengi: One way to do that would be to lower our DSI [Editor's note: DSI or "days in sales inventory" is the period of possession of sales-related inventory measured in days.] We run an average of about four days on DSI, a number that's stated in our quarterly report. Our ability to control DSI is directly related to our ability to do demand shaping based on supply. In other words, DSI depends on what supply constraints exists or don't exist. We'd love to get it down to one day. But our first push will be to cut the current DSI in half. What would really be great is if we didn't hold any inventory at all. The product would flow directly from the supplier into the product.

ZDNet: Will pushing down your DSI affect your flexibility on the components? You may have to commit to a hard drive or memory vendor instead of being able to switch.

Marengi: We're very demanding on our suppliers. We require that things be done in a certain way and to a certain quality. We monitor the service level agreements we have with our suppliers very closely and we put a lot of money into quality field engineers. These are Dell employees that sit in our suppliers' shops in Malaysia and they monitor the quality of the product as it comes off the line. If the product isn't up to snuff, then they must remedy the problem or we'll stop [doing business with] them. Right now, we have no single vendor for any thing. Diversity helps with performance. If one supplier has to be cut, and we can ramp up a second supplier very quickly.

ZDNet: As services become more important, how do you think you'll fare against the likes of IBM and HP?

Marengi: Our services business is growing in excess of 25 percent year over year. It's now at $4bn. We just announced a managed services contract with Boeing, and to win that, we had to displace IBM global services. We're providing the end-to-end client/desktops/workstation lifecycle management. This is everything from procurement to installation to moves, adds, changes, maintenance and retirement. So, as a workstation enters an organisation and goes to the engineers who need the processing power most, and then, when it's time to refresh those engineers and their existing systems get handed down to business users, whose existing systems get handed down to secretaries whose systems get retired, we manage all of that.

ZDNet: Will you manage non-Intel systems?

Marengi: We prefer Intel-based systems. We'll do Sun, but we'll give that work to a subcontractor that we'll manage.

ZDNet: Any plans for a tablet?

Marengi: We haven't spent $25m on tablets like some of our competitors have. You keep reading about all these people buying tablets but where are they? As with other new categories, the market has taken a dip after an initial spike. If and when we see it as an opportunity, we're ready. We've got all of the partnerships lined up and we're ready to pull trigger.

ZDNet: Who should be held responsible for security problems? The operating system vendor, or the company someone buys their computer from?

Marengi: At end of the day, we are accountable for what you buy. We're working with Microsoft and, as you know, they're working on their protective shield. But we have to address the problem because it's affecting our company in a variety of ways. Our . customer support cost has gone up and our call volume is going up. When the call volume increases, and the call lines back up and there's an increase in wait times, our customers get upset and then we end up with decreased customer satisfaction. Matters get worse if the calls are going up and our network goes down [because of a virus or worm. The last one [Sobig] hurt us and it hurt our customers, so we have to find better ways. Microsoft knows before anybody else knows. The key is when Microsoft turns to the OEM partner like this and says you have to implement this. But if there's a one-day difference between the time we implement it [and when the vulnerability is announced], we're basically out of luck.