The New Dell Ends its First Year

Dell's efforts to reinvent itself this year through a dramatic break from its direct-sales model, expanded services and new enterprise offerings have shown positive early results, but some users have lingering concerns about supply chain management and support -- long-time issues for the company.

Weathering an accounting scandal and a slump in profit, founder Michael Dell reclaimed the helm of the company after CEO Kevin Rollins resigned in January. Dell quickly replaced top managers and in May announced plans to lay off 10 percent of the company's workforce.

For years, Dell was the top PC vendor in the world, an acknowledged master of logistics in a business where margins can be razor-thin. It was efficient enough to keep prices low to ward off competition without suffering big setbacks in profits. But by 2006, when Hewlett-Packard unseated Dell as global PC leader, that was no longer the case.

Dell's plans to regain its former dominance have resounded in the market. The company's third-quarter results, announced two weeks ago, showed profit increasing year over year, and record revenue of US$15.65 billion. During the company's earnings call, Michael Dell said the company will put products on more retail shelves worldwide while also helping business customers "simplify IT" and reduce maintenance costs via customized hardware, software and services.

The company has also moved to put accounting issues behind it, recently completing an internal investigation and restating its financial results from fiscal 2003 to the first quarter of 2007.

The company has been making an effort to build relationships with customers and partners and deliver products that are easier to deploy and manage, said Charles King, principal analyst at Pund-IT.

In November, Dell introduced a two-tier channel program designed to give partners better access to Dell's training, marketing, certification and online resources. The program will provide a better chance for Dell to interact and understand its partners' needs, the company said.

"The company seems to recognize that it has bridges to enhance with customers and partners in the channel. It's not something that's going to change overnight," King said.

After years of success selling PCs directly to users, the consumer business' direct-sales business model hit a wall as component prices fell, Pund-IT's King said. The strategy to simplify IT is a play at small- and medium-size business and enterprises that will help Dell deliver better returns in the long term than its lower-margin direct consumer business, analysts said.

However, some customers continue to have concerns about the company's support and supply chain issues.

Dell is having supply shortages and can't get its servers and OptiPlex desktops to individuals and small businesses in a timely manner, said Josh Kaplan, who runs a franchise of computer support firm Rescuecom and purchases parts and interacts with Dell on behalf of customers.

"You can acquire all the technology you want, but Dell will send hardware out blindly," Kaplan said. It will be a challenge for Dell to deliver what it calls "IT in a box" -- its terms for packages of products and services -- to SMBs and enterprises, Kaplan said. Dell has traditionally delivered mostly standardized systems, Kaplan said. While Dell has built systems-to-order by letting users select from a menu of options, it does not have in-depth experience offering customers services over the lifecycle of products, he said.

Jeremy Cole, owner of Proven Scaling, a small consulting firm with offices in the U.S. and U.K., said Dell has internal staffing issues that affect its support services.

"Dell's sales structure is really strange. They tend to bounce your company around to a new account representative every few months, who are wildly differing in experience, intelligence, and understanding of the Dell sales system," Cole said.

Cole is satisfied with Dell equipment, but said the company needs to show more support for open-source applications and the Linux OS. "It's clear that Dell cares about Linux, in that all their server-class hardware is well-supported by the Linux kernel and they have many people dedicated to making sure that's the case. However, it's not good enough just to boot," Cole said.

Though generally positive about Dell's support, Jason Dunn, who runs Thoughts Media, which publishes Web sites for technology enthusiasts, couldn't resolve certain LCD monitor problems with Dell offshore support representatives. He had good experiences with Dell's PC and HDTV support representatives, so the experience varies, Dunn said.

Other users have had a good experience with Dell's strategy to simplify IT. Dell's efforts have paid dividends for, a medium-size retail business in San Antonio, which saved money by cutting its internal IT person. The company uses Dell systems with Microsoft Dynamics Retail Management System, connected to multiple offices via a VPN (virtual private network).

"Businesses are in a belt-tightening mode. You can't have extra people on payroll," said Whit Snell, general partner at Bikeworld has resolved IT problems with Dell remotely and has a contact readily available to help with problems.

Dell officials were not available for comment on support issues.

Overall, Dell is trying to be more proactive and helpful, said Kurt Scherf, vice president and principal analyst at Parks Associates. Dell's new enterprise support services to simplify IT, like remote management services, could, if successful, trickle into the consumer segment, which could benefit end-users, Scherf said.

Dell this year has tied up with retailers like Staples, Wal-Mart and Best Buy to distribute PCs, something competitors HP and Acer have been successful at. But if Dell wants to make sure its customers aren't tempted by HP or Lenovo in the retail market, fixing problems that some users report about its support infrastructure has to be on top of the company's to-do list, Pund-IT's King said.

Building out retail partnerships changes the consumer-facing relationships for Dell, which could lead to positive changes in the company's support and services. The results are a work in progress, King said.

Balancing out its business model, Dell is showing signs that renewed efforts in the higher-end business sector are catching on, with third-quarter revenue growing in the server and storage markets. The enterprise market provides better margins than retail, and the remote management services market is growing, King said. Dell is trying to address that through acquisitions and by creating a services organization and specialized products targeted at professionals and businesses.

The company this year acquired SAN (storage area network) vendor EqualLogic and managed services companies Everdream and Silverback. It announced a deal with Sun to offer the company's Solaris OS.

Dell has been pushing hard to improve its systems management portfolio, especially remote desktop management capabilities that could help simplify complex IT infrastructures. In October, the company announced On-Demand Desktop Streaming, a server-based platform that streams the OS, applications and data to diskless desktop clients over a Gigabit Ethernet network.

By offering design improvements and bundling software and services like remote management, Dell is trying to get the focus off of price and moving to build the framework for a new business model for the enterprise, said John Spooner, senior analyst at Technology Business Research.

Dell's reinvention should come as no surprise as Michael Dell is on a mission to reconstruct his company, Pund-IT's King said. "It must have been hard for Dell to see a company he built falter," King said. He is putting money in the right spots, and competitors like HP and IBM will do well to keep a close eye on Dell, King said.