It's no longer just about PCs - Dell boss

An associate describes Michael Dell as 'constantly online, constantly working and constantly in touch'. Photo / Supplied

When Salesforce.com Inc chief executive officer Marc Benioff wanted ideas about how to run his business during the technology recession of 2001, he turned to his friend Michael Dell.

Dell's advice: "Economic difficulties are a time when companies can reassess where they are in the market and rebuild themselves rapidly," says Benioff, who has known Dell Inc's founder and CEO for 20 years.

Now Dell is trying to follow his own advice. Since returning as CEO of his namesake personal-computer company in January 2007, Dell, 44, has made 10 acquisitions, cut more than 10,000 jobs, outsourced 40 per cent of production and entered the smart-phone market in China. The goal, Dell says, is to diversify beyond PCs, which he started selling from his University of Texas dorm room in 1984 at the age of 19.

"You're starting to see a real reshaping of the Dell portfolio and Dell business away from some things that were pretty important for us in our first 25 years," Dell said. "We're doing some new things that will be more important for our next 25 years. We're making progress."

To reduce its reliance on PCs, which account for more than half of revenue, Dell has expanded into markets such as computer storage and services and announced the US$3.9 billion buyout of Perot Systems Corp last month.

Dell said in the interview that he would consider more acquisitions or partnerships that expand the company's sales to healthcare companies, which account for more than half of Perot's revenue.

INVESTOR CONCERNS

The pace of the overhaul, though, has left some investors and analysts unimpressed.

The Round Rock, Texas-based company's shares have lost 35 per cent since Dell ousted his hand-picked successor, Kevin Rollins. During that time, Armonk, New York- based International Business Machines Corp has jumped 29 per cent and Palo Alto, California-based Hewlett-Packard Co gained 11 per cent.

PCs represented about 60 per cent of sales at Dell for the past three years, down from almost 80 per cent in 2000. Services accounted for 10 per cent of sales last year. Dell dropped to third place from second in the global PC market last quarter, Framingham, Massachusetts-based researcher IDC said.

At Hewlett-Packard, which retook the PC lead from Dell in 2006 and has worked to expand its software and services business, PCs account for about one-third of sales.

"The best thing that Michael Dell can do is take PCs off the table and diversify," said Ben Reitzes, an analyst with Barclays Capital. "He's starting to do that, but he's late."

Dell was up 11c to US$15.47 in Nasdaq Stock Market trading yesterday. The stock has gained 51 per cent this year. It declined in each of the past four years. Of the 33 analysts who cover the company, 14 recommend buying the stock, 18 say hold and one says sell.

Dell has a "high degree of impatience and intolerance" for a lack of action, says Don Carty, chairman of Virgin America airline and a Dell director since 1992.

"He is always the executive on the team that says, 'Why not faster?"'

When asked at an event in California this week where the company stands in its turnaround efforts, Dell said, "somewhere in the middle. We've made a lot of progress."

Carty says Dell hasn't been too slow. Investors may have unrealistic expectations about how long it takes to turn around a business with more than US$60 billion in annual sales. COMPLEX ORGANISATION

"There becomes an expectation when someone comes back to run the company that within a quarter the results are going to change," Carty says. "This is a big, complex organisation today and change takes time. Michael is not focused on quarter-to-quarter earnings."

When Dell returned as CEO after a three-year hiatus, a time when he held the position of chairman, he spoke to the board and executives about his excitement and the challenges he faced in remaking the company.

"He said: 'All you people care about this company, but I'm going to care about this company when I'm dead,"' Carty says. "I think there's some truth to that."

In August, Dell reported second-quarter profit and sales that beat analysts' estimates after cutting manufacturing costs and attracting buyers with low-priced notebooks.

This quarter, analysts predict sales will drop 14 per cent to US$13.1 billion and start to rebound by the end of Dell's fiscal year in January.

When asked to rate the pace of change at the company, Dell says the economy has been the biggest stumbling block, something he refers to as "an interesting little challenge".

"I always want to go faster," Dell says.

"I've been known to have a fair dose of impatience."

LONGTIME FRIENDS

Still, he can be patient when the situation calls for it. Dell first approached the Perots, who are long-time family friends, two years ago about buying the computer-services provider.

Perot Systems, founded by H. Ross Perot, wasn't interested in selling at the time, according to regulatory filings.

After considering other computer-services providers, Dell returned to Perot Systems in April and offered US$17 to US$19 a share for the Plano, Texas-based company, according to filings. When that offer was rejected, Dell raised its bid three more times - settling on a cash deal that, at US$30 a share, represents a 68 per cent premium.

Dell's takeover of Perot "made sense to me", Azim Premji, chairman of Wipro Ltd, India's third-largest software services provider, said in an interview. Perot "is a very good company. They have a base which I think is useful."

PEROT PREMIUM

When asked why he didn't do a services deal sooner, Dell said "we either weren't ready or it wasn't the right time for a variety of reasons," declining to elaborate.

Asked about what caused Dell to go from bidding US$17 to US$30 a share over of five months of talks, he said: "This is what you'd call a negotiation."

The deal was mediated in part by Thomas Luce III, a Dell board member since 1991 and a friend and adviser to Perot and his son, Ross Perot jnr, chairman of Perot Systems.

"It's not surprising that Michael and Ross jnr did a deal," Luce said in an interview. "They're pretty big names in Texas, and both have a lot of energy and drive."

PROFITABLE PCs

As for PCs, Dell says he's looking to a new version of Microsoft Windows to buoy sales, at first to consumers. Businesses, which account for 78 per cent of Dell's revenue, may be slower to test and implement the new operating system, though Dell said there will be a major upgrade cycle for technology at some point in 2010.

Dell says he's focused on profit in the PC market, even if that means losing its No2 market ranking behind Hewlett- Packard. "What we want to be is leading in profit share," Dell said. "Do we want to sell the most numbers of units? No, we want to have the most profit."

Benioff describes Dell as one of the hardest-working executives he knows.

"You send him email, you get a response a minute later. He's constantly online, he's constantly working, he's constantly in touch," Benioff says.

"He's not afraid to get out there and be with the customers."

- BLOOMBERG