Bangalore: Michael Dell, CEO of Dell Inc, the third largest PC maker in the world, increasingly sees the company’s consumer product business as more of nice-to-have than need-to-have, focusing instead on growing the $8 billion enterprise services share of its $60 billion business. With a $16 billion cash pile, Dell sees acquisitions as the way to do it. He has no regrets about eschewing the part of the technology pie that gets consumers excited, whether tablets or smart TVs. The way to fail, he says, is to try to be everything to everybody.
Edited excerpts from an interview:
Dell missed revenue estimates in the most recent quarter but was better on profitability, moving away from large but low-margin PC sales. But you have also dismissed talk of a post-PC era. Is the shift to a services focus now complete?
Key market: Dell says India is very competitive and a key enabler and that’s why the firm is investing here. Photo: Anirudhha Chowdhury/Mint
We are growing our services business quite well. India has a big role in that. Broadly speaking, Dell has a strong product business. But it is growing in software and services, and we want to give clients the solutions that they crave. We have put the leadership for a significant portion for services in India. We are growing our application business, our BPO business, and India plays a key role in the transformation for Dell worldwide.
There is still some scepticism about what many see as Dell’s late entry into services.
If I look at the last four quarters, we have had healthy operating incomes and our EPS (earning per share) has increased 86%. Our growth in services and enterprise products and services have been key. Our strategy is working quite nicely, thank you very much. We are in a big market. I don’t know of many companies that have an 86% growth in EPS.
How do you read the services market today, and the changes that are taking place in engagement models, pressure on margins and so on?
Our services business is already $8 billion. It would not be right to say we are just coming in. It is a pretty good size and quite profitable. For us, the opportunity is to grow to $16 billion and $24 billion and beyond, by expanding the range of what we do for our customers. That widens the market for us to $3 trillion.
And the investments we are making, including in new sites in India, adding thousands of people, the organic growth, the inorganic growth is around this transformation. And it is showing up in record levels of profitability and cash flow. I think we have a nice margin structure. India is very competitive and a key enabler. That is why we are investing here. The key to margins is innovation and value, and that requires investment. Clients are looking for faster implementation, faster time to value, more modular solutions, and they are looking for us to take on more infrastructure services, and more end-to-end solutions. What we are finding is that when we engage with clients on services, our relationships become much more meaningful, deeper and more significant.
What are the key verticals for Dell?
Healthcare for historical reasons, with the acquisition of the Perot business. Healthcare is still underpenetrated. Then there is BFSI (banking, financial services, insurance), manufacturing, retail, education, and a strong public sector business, solutions of scale.
What are your plans for the BFSI business?
You know, within each vertical, there is a plan of attack and for building capabilities. We have strengths in insurance, we are looking to get stronger in core banking and financial services. One of the big areas for us has been migrations, which ties into the value of our infrastructure business. A lot of BFSI firms have legacy systems, they would love to get it into an X-86 environment (the present Intel computing architecture), if necessary hosted in a secure data centre. We have done a lot of conversions. We also have a strong capability around security, which is a key issue for this sector, given its high-value, high-volume transactions. Last year, we acquired Secureworks, which protects $22 trillion worth of assets, absolutely the leading managed security services company in the world.
For the services play to be really successful for you, would you not need to make more acquisitions?
I think you should think of Dell as a company which is a serial acquirer, which will constantly be acquiring other firms around the world, to enhance our capabilities in areas where we are focused and driving growth. We look for the best capabilities we can find anywhere in the world.
What would you like to do with your consumer business. You are even scaling down your presence at next week’s Consumer Electronics Show (CES).
Here in India our PC business is doing pretty well. We tend to have a broader set of solutions beyond just the PC, we are focused on the high-value part of the market. And at CES, we are going to be there, and we will be showing off some really exciting products.
As a consumer electronics brand, just a few years ago, analysts were putting you along with the biggest names, like Apple and Bose, in terms of growth potential. Is there a sense of regret that you are completely moving away from the world of tablets, smart TVs and so on?
Let us step back and look at the $3 trillion market I mentioned. About $250 billion of that is consumer, $2.75 trillion is commercial, public sector and government. We like the consumer business, we have new products there, but we are more appropriately focusing on that $2.75 trillion. No regrets. A great way to fail is to try to be all things to all people.
Given the jobs situation in the US, some are expecting a backlash again about outsourcing.
I get asked this question in India but not, at least recently, in the US. Maybe people here are more focused on people over there. That is my observation. We want to be thought of as a company that is based here in India, as much as anywhere else. We do so much here, outsourcing, R&D, manufacturing, software development, a very broad spectrum.
So what will Dell be like say in five years?
Dell will be a leading IT solutions provider that is quite a bit larger and more profitable, and with an even bigger presence here in India.