Dell pursues a new direction

Interview with Michael Lambert

Known in the past as a direct provider of desktops and notebooks, Dell Computer Corp. is quickly claiming its share of the server market and closing fast on Compaq’s number one position.

Though Dell’s fourth quarter earnings fell below the 56-per-cent average growth rate it has racked up in the previous eight quarters, the company’s revenue climbed 38 per cent to US$5.17 billion from US$3.74 billion a year earlier.

Michael Lambert, who recently joined Dell as senior vice-president of the enterprise systems group at Dell in Round Rock, Tex., visited Toronto recently and discussed Dell’s future direction with ComputerWorld Canada staff members Peter Wolchak and Rebecca Maxwell.

CWC: Dell appears to be remaking itself or redirecting itself in the last few years. How important is the enterprise space for Dell?

Lambert: Very much, for two basic reasons. If you look at the size of our company today, most analysts are looking at somewhere well in excess of US$18 billion in sales this year. If you look at our core business in the past, primarily desktops and notebooks, we are competing against our three major competitors, being IBM, HP and Compaq. All have very sizeable server businesses. So if we just allow them to go unchecked forever and ever, then competitively that puts us at a potential disadvantage. From a defensive or self-survival standpoint, it’s very important that we’re in this business and not allow them to run rampant against us. From an offensive standpoint…we want to participate in a fast growing market and protect ourselves and compete against our competitors.

CWC: Is the server market a do-or-die business?

Lambert: If we didn’t have [servers, customers] would have to turn to one of our competitors for their servers and once they’re in the door it gives them a chance to start propagating their other products. Servers sell a lot of desktops and notebooks.

CWC: Is Dell yet the server company it should be?

Lambert: No, but we’re getting there. When you’re taking over an operation or you’re trying to incubate and grow something up in it, I think you have to set some very simple objectives. We set some very simple measurements on phase one to our success, and that was double digit market share. At the time I came to Dell…we had about one or two per cent market share, Compaq had approximately plus 40 per cent, HP and IBM each had about 15 and Dell and everybody else had one or two, so it was really the big three, or at least Compaq plus the other two and then nobody. To change that, we had to get to at least what I felt was 10 per cent or more market share, just so that we would get the attention of the Oracles and SAPs and everybody else.

CWC: Dell’s systems are Intel-based, Compaq now has proprietary processors. Is that a threat to you?

Lambert: No. As a matter of fact I think it’s an advantage to us. I was disappointed that Intel slipped Merced because with the Merced architecture it would allow us to build more powerful systems and accelerate intrusion into what has been the RISC Unix space. [Compaq’s Digital] acquisition forced them to recommit to Alpha and in doing so fractured their R&D spending. Any time you have a competitor defocused or having to focus on a multiple front versus just one, they have to spread their resources and that I think helps us.

CWC: Alpha is a pretty good processor, though.

Lambert: If you go back to the early 90s and you look at that point in time, it probably would have been MIPS as the processor architecture of choice. Fast forward into the mid 90s, you’d start to see the Power PC or the HP RISC…the only product that survived those 10 years is SPARC and I guess you’ve got Alpha, but I would suggest had Compaq not acquired Digital, Alpha would have been totally dead by now because no other systems vendor picked it up and used it. While the processor itself may have some good features or even maybe some superior features, Intel still owns the microprocessor game. When you look at the billions of dollars they pour into development every year for that and the cost of those processors today, it’s just very hard to justify why anyone would do anything but build their product around an Intel architecture.

CWC: We hear that users are driven nuts by trying to keep up with the advances in processors. Do you get that sense too?

Lambert: Well, …with innovation comes reduced costs, or in the case of servers, sometimes a bigger server costs you less and so you can consolidate. I do think where [advances] cause a fair amount of churn is in companies trying to standardize. Because we build every unit one at a time and we sell that directly to you, if you said I don’t want that change I want (this)…we can in fact keep that open for you, we can keep that SKU available. That’s virtually impossible to do upon distribution because our competitors build a bunch of units and ship them to distribution and when they’re gone they’re gone.

CWC: You pre-configure servers for some customers. What percentage of your enterprise customers are looking for that service?

Lambert: We have a service called DellPlus for all of our products, but DellPlus for our servers specifically is where we’ll do an extra function for our customers. Maybe we integrate some specific hardware for them. So it starts out as simple as we load the operating system for them to as complicated as we integrate some special hardware, load their applications, burn it all on a disk and then ship it to their installation site. Today a little over 20 per cent of our systems have that extra touch.

CWC: You buy your processors and your components from the same place that your competitors do, so how do you differentiate yourself?

Lambert: We differentiate ourselves based on our business model, the fact that we sell direct and our three major competitors go through distribution. Many customers want to deal directly with the vendor…we’ve kind of pioneered that concept and caused the industry a fair amount of disruption in trying to deal with that. I don’t want us to be known just as the low-priced providers. I’d rather be the high-quality providers and then we just happen to have a good price.

CWC: You’ve got three general server categories, work group, departmental and enterprise. Where are the bulk of your sales right now?

Lambert: The volume is always in the lower end of the product line just because large companies will buy low-end servers to deploy in their branch offices, and remote locations and small companies will buy large servers, but most often they buy the small ones just because they meet their needs. At the higher end of the line we’ve made huge progress over the last year in terms of stepping into that four processor range. Later on this summer we’ll be releasing an eight way in the line.

CWC: Have you had a lot of requests for eight way, or are you trying to be ready when those requests hit?

Lambert: A fair amount. I think there’s typically two schools of thought and a third emerging. One camp is, “These servers are cheap and so it’s just better to put application-specific servers in so as not to mix environments.” There’s another camp that says “I’ve got too many of these things and so fewer and more manageable is better and so I’m going to consolidate them.” A third camp that’s growing is, “Not only do I want to have either application-specific servers or bigger servers, but I also want to centralize my storage and manage the application servers large and small.” That was really one of the primary reasons that launched us off into the storage division.

CWC: Where are you going to go from now, other than faster and bigger processors? What can you do that’s not faster and bigger that will continue your success?

Lambert: Many times we’re going into locations where the people aren’t technical enough to be able to leverage that (technology) so we’re putting a lot of emphasis into remote manageability, pre-failure diagnosis. Today, over 75 per cent of the calls that come into our call centre are software related and they have nothing to do with the hardware. If we can build tools that allow us to diagnose what that is, remotely repair it without ever having to send a human, we can make these things much easier to survive, solve and manage and people can get the real value out of them.

CWC: What’s your biggest personal business challenge?

Lambert: I probably have two. One is internally acquiring the people we need to grow our business. We have about 25,000 people in the company today. We’ve hired almost 12,000 of those in the last two years. Assimilating those people into our company, keeping our culture intact and preparing the future leaders of tomorrow as we grow from a US$18 billion company to a 40 or 50 billion dollar company is something that’s constantly there. The second is keeping our own sales force up to speed on the complexities of our product. The breadth of our product line keeps expanding…and the learning and training and the technical complexity is pretty daunting.