TEXAS: Dell Inc’s billionaire chief executive, arguing that his efforts to transform his company have gone unnoticed by some on Wall Street, wants to drive the acquisitions that will prove crucial to its long-term future.
But he is also starting to see warning signs of increasingly frothy technology valuations, and said firmly he will not pay unreasonable prices to acquire new pieces.
Nearly four years into Michael Dell’s second stint as chief executive, the company finds itself lagging larger rivals like Hewlett Packard Co and International Business Machines Corp in the race to become one-stop shops for corporate IT needs.
In a major move to expand its presence in the hot area of cloud computing, Dell announced it is bidding for storage specialists Compellent Technologies Inc in a deal valued at close to $1 billion.
Dell says the company is indeed becoming more diversified, and wants to be a major player in both data center equipment and the fast-growing mobile market.
“Five or 10 years ago people would say Dell is a PC company. Well, news flash — most of our margin and profit doesn’t come from PCs. I don’t think people get that,” Dell said in a rare, exclusive interview.
“Margins are going in the right direction, the mix of the business is shifting in a pretty considerable way, the picture is starting to emerge more clearly what Dell is becoming.”
Asked what the Dell of the future might look like, he downplayed the role of individual product categories, which he called “ingredients” in a broader IT menu.
Righting the ship
Once the world’s top PC maker and a mainstay of business-school case studies, Dell has shed market share and now vies with Acer Inc for second place.
More than half its business still comes from selling low-margin, commodity PCs. But Michael Dell has made no secret he is determined to diversify the company into more profitable areas — such as software, services and storage.
The CEO who started out upgrading PCs from his college dorm room acknowledged that plenty of work still lay ahead to compete with rivals like IBM, HP and Apple Inc.
“It takes time, but clearly the company is changing,” he said.
Dell was presiding over an event at corporate headquarters to promote what he sees as a major opportunity selling equipment and services to small- and medium-sized businesses, a segment often overlooked by investors but which makes up roughly a quarter of sales and a third of operating income.
“Dell has an enormous channel that can sell to these customers, and this is also where all the growth is,” said Dell, who founded the company in the 1980s while still a college student
Steve Felice, who leads Dell’s mid-market business, said such companies are the largest group of spenders on IT.
“They’re often ignored from a technology standpoint,” he said.
Needs more convincing?
Michael Dell stepped down as CEO in 2004, but returned in early 2007 to try to revive his company, which remained too dependent on PC sales as the market matured.
Dell raised its yearly profit outlook last month, but investors will need more convincing before they grant the company a higher multiple.
Since Michael Dell reassumed the helm, the company has had its ups and downs, amid deep job cuts and restructuring. But Dell pointed to the strong third-quarter results and said the company is now hiring thousands, though he expressed surprise it cannot find enough qualified people to fill vacancies.
To help drive growth, it has also launched a major push into mobile devices, introducing both a smartphone and a tablet, although analysts say that effort has failed to gain traction thus far.
