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Dell sees revenue growth through intellectual property not PC sales

Tin boxes are not the way forward
Mon Aug 22 2011, 05:00

TIN BOX FLOGGER Dell has said that simply selling computers is not the way it plans to increase profits.

John Everett, Dell's EMEA storage business manager told The INQUIRER that Dell is working hard to change the image it has of a firm that flogs little more than cheap and cheerful desktops, laptops and servers. Everett said that customers no longer want to know what hardware needs to be changed but want to buy hardware that is modular with licensing that allows them to add-on features and services as required.

Everett said that Dell is moving from its previous low margin model to a high margin "intellectual property" model, that is, one that is based on patents, copyrights and trademarks. According to Everett, 80 per cent of Dell's revenue reported in the last quarter was from intellectual property and that allowed the firm to move away from the "rip-and-replace" paradigm that was so popular a few years ago.

While launching Dell's latest Equallogic PS4100 and PS6100 series storage appliances, Everett mentioned that the firm is not only releasing hardware but new firmware, which it will make available to users that have service agreements in place. Everett said that customers like investments in legacy setups, which keep companies' investments alive longer.

Everett mentioned that Dell, like others, is moving more towards becoming a "solutions based company". That means Dell won't just sell hardware but the support, tight integration with infrastructure applications and consultancy. Everett symbolised this attitude in the way Dell's sales force now does business. "They don't go in asking how many PCs are required any more", said Everett.

Given that most commentators believe HP's decision to spin off its PC business was due in part to its razor thin margins, it is logical to think Dell might also be considering something similar. But according to Everett, Dell is not budging, because "customers want to have an end-to-end solution, all the way from the client to the enterprise and vice versa, they want to deal with one company". In effect Everett is saying that having a PC business helps it win contracts for its other business units.

Judging by Everett's comments it is clear that Dell realised a long time ago that selling cheap, anonymous boxes was not the way forward. However, it has already taken steps to increase overall margins to a point where it believes that carrying on with its PC business is actually a help and not a hindrance.

With HP deciding to kick its PC business to the curb, this could be the perfect time for Dell to step back into the number one spot among system builders. And if Everett's claim of customers wanting to deal with a single supplier all the way from the desktop to the datacenter is correct, staying in the PC game might work out to be extremely profitable for Dell. µ


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