Interview: Dell to shift away from desktops as stocks dip

On Thursday, Dell Computer Corp.’s share price dropped to a new 52-week low of US$17.44 after hitting a 52-week high of nearly $60 in March. On Friday, Dell chairman and CEO Michael Dell spoke with Computerworld’s Don Tennant about what he plans to do to make his company less vulnerable to a whimsical financial market that’s punishing PC makers.

Q: As CEO, your job is to bring value to the shareholders who can’t be too happy right now. How do you plan to do that?

A: The stock market can be a frustrating thing. There are some things that you can influence and try to control, and there are some things you can’t. The things that we focus on are strategies for growing, delivering earnings, cash flow, revenue growth. The things we can’t impact include things like the overall macro economy, the sentiment toward our industry and other things like that.

If you look at Dell, you’ve got a company that last quarter had an increase in earnings of 39 per cent, we generated $1 billion of cash flow, we have $8 billion in cash, we have return on capital of 316 per cent. It is true that while we did that the price of our stock went down. But it’s also true that if you keep doing that over any length of time, the price of stock will go up. It may go up faster than it should at times and it may go down faster than it should at times. But that doesn’t change our job.

Q: You’ve said that one of your strategies is to drive your mobile business. Will that include coming out with a handheld? A Dell-branded Pocket PC model, perhaps?

A: Right now [the handheld market] seems fairly confusing. It’s not clear who the winner is in that. But we’re looking at that. If you look at the category of mobile computing, handhelds represent 18 per cent to 20 per cent of the unit volume, but it’s only about four per cent of the revenue. According to IDC, it’s expected to grow tremendously to perhaps as much as 45 per cent of the unit volume, but it will still be only nine per cent of the revenue. So it’s important, but it’s about 10 times less important in revenue terms than the notebook. Yeah, we’re interested in it, we’re focused on it, but we’re not as focused on it as we are on the notebook, server or storage market.

Q: So what are the chances of seeing a Dell-branded handheld a year from now?

A: Too soon to say. We’re looking at it. But I can tell you this: If you do see one, chances of it being more than 10 per cent of our mobile revenue, even five years from now, are pretty slim.

Q: Desktop PCs represent about half of your revenue and one-third of your profit. Where do you see that curve heading?

A: Down. The shift to mobile and the growth in the server, storage and services [businesses] will drive it down. It’s not going to go away, you’ve got to have something to see all the data.

Q: As you continue to diversify away from desktop PCs, is it part of your strategy to make acquisitions to accelerate the shift?

A: Well, things are getting cheaper and cheaper every day. Acquisitions are not something that you should approach abruptly. But if you’re going to see acquisitions by Dell, and I think it’s highly likely, they would most probably be smaller acquisitions in these other areas where Dell is expanding – storage, services and wireless.

Q: You’ve made it very clear that you’re interested in the Linux market. Do you feel like Bill Gates and Steve Ballmer are keeping an eye on you?

A: When I think about Linux, I don’t think about Ballmer and Gates. I think about the customers who are buying Linux. It’s not a massive part of the market, but it’s a growing part of the market, and we’re here to serve those customers. For Unix-centric customers, we think Linux is a great alternative to [Sun Microsystems Inc.’s] Solaris. The gestation cycle for Linux is a fairly long one, so we don’t expect that this thing will all of a sudden be a massive percentage of the market.

Q: How much has the bursting of the dot-com bubble hurt Dell? How many of the companies that are tanking are Dell customers?

A: Sure, a lot of these dot-coms are small businesses, so a lot of them are Dell customers. So if you ride that up, you’ve got to ride it down. It’s important not to overlook, however, that there are real changes going on in the economy. There are times when the markets, for whatever reason, will allow a lot more experimentation than might otherwise be rational, and we certainly just went through one of those times. I continue to believe that the real beneficiaries are existing businesses that already know how to build products, satisfy customers and generate cash flow, who can use these [Internet-related] tools to become a lot more efficient than they have been.

Q: What’s the best decision you’ve made at Dell?

A: Dropping out of college and starting the company. That was a good one.

Q: What’s the dumbest decision?

A: We once created our own version of Unix back in the late 1980s. That was certainly not a good idea.

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Jim Love, Chief Content Officer, IT World Canada

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