Dell Retool Continues

Dell, Inc. announced further details as it strives to rework the company back into a position of greater dominance and improved profitability. Along with continuing employee cuts, the company intends to pull back on its build-to-order strategy, divest its financing arm, and shut down a plant. The company also announced that it is powered by 100 percent renewable energy at its worldwide headquarters.

Focal Points:

• As Dell updated interested stakeholders this week, it announced that it has already cut its workforce by 3,200 people out of its previously targeted 8,800. The company is also looking to outsource and partner with specialized firms in areas ranging from design, manufacturing, logistics, materials and components, and operations. Dell is also closing its Austin, TX desktop manufacturing facility as the company aims to radically reduce the number of build-to-order custom configurations that it offers customers. Within the last year, Dell has significantly augmented its direct sales model to include more than 10,000 retail establishments where consumers and small businesses can purchase systems. Though Dell recently acquired the remaining 30 percent control of Dell Financial Services from CIT last December, it is now actively accepting bids or considering spinning off the business. The consumer portion of Dell Financial Services is the most troublesome for the company, though the whole business may be divested.
• Dell's reduction in build-to-order system quantities and shut down of the Austin facility is related, as the company performs a great deal of custom builds in that plant. The move away from having as many made-to-order PCs stems form a desire to rid the design, manufacturing process, and supply chain of a great deal of complexity and cost. Over the last several years, the company has been promoting pre-built PCs which have specific design elements incorporated based on the price band customers require. Custom manufacturing can erode much of that profit, particularly in low-end models, according to the company.  This has been particularly true for the company in the desktop PC space, where overall industry shipments have dropped from 70/30 to 50/50 of desktops/notebooks. The company also made it clear that additional an workforce reduction was possible as it strives to remove $3 billion from its operations by 2011.
• On a positive note, Dell has is now fully powered by renewable energy at its 10,000 employee global headquarters. The facility is 2.1 million square feet in size, and sources 40 percent of its power from local gas-to-energy facilities. The remaining 60 percent comes from existing wind farms. Dell claims that all of its operational initiatives have netted the company $2 million in annual savings and eliminated 12,000 tons of greenhouse gas emissions. Dell's Twin Falls, ID facility is also fully powered by renewable energy sources including wind and solar energy.

Experton Group believes Dell has a sizable chunk of work ahead of it to reverse the slide it has been on. The company lost the top spot in worldwide PC shipments to Hewlett Packard, Co. (HP) one-and-a-half years ago, and is now trying rapidly to reinvent itself. The first iteration of the company was based primarily on its ability to manage the supply chain and the operations/logistics aspects of manufacturing better than the majority of its competitors. Though not the only factor, Dell's price pressures helped to push Digital Equipment Co., IBM Corp., Micron Inc., and others out of the business altogether, while playing a contributing role in the decision for HP's Compaq Computer Corp. acquisition. With a majority of PC development and manufacturing now outsourced to Asia, Dell's customized build-to-order, direct sales model is unable to keep pace with the price pressures afforded by the cheaper costs afforded to Chinese and Taiwanese manufacturers. The company is now, for the first time in its existence, challenged to redefine itself in a totally new manner. Enterprise hardware vendors cannot compete solely by having the lowest prices on commodity hardware, and services, software, and funding offerings often play a key role in the sales process. IT executives should continue to trust Dell as a tier one hardware vendor, but will need to keep a keen eye on quality and service levels as the company goes through this major transition. Over time, Dell will be forced to prove whether it can either find the next big way to wring costs out of PC sales and/or develop hardware, services, and software offerings that are solution aligned with enterprise requirements and key emerging technologies.