Dell's plan to save itself
May 28th 2009 10:00AM
Updated Dec 4th 2009 11:14AM
Dell (DELL) has been losing market share in the PC industry to Hewlett-Packard (HPQ) and Asia-based Lenovo and Acer. It has not been able to come up with novel machines to attract a new wave of buyers. Its earnings today are expected to be poor.
HP at least partially solved it reliance on hardware by expanding into the IT services business. Since it bought EDS, its services division has grown tremendously and has strong margins. Dell has not made anywhere near the effort that HP has to diversify away from PC and server sales.Dell has learned a lesson from HP's services push, but the lesson may be coming too late. According to The Wall Street Journal, "Dell said its services business, which it has been growing for two years through acquisition and hiring, now accounts for more than 10% of its total revenue." For a company with over $60 billion in annual revenue, Dell would need to have a much larger services operation to move the earnings needle.
Part of Dell's problem going forward is that most large tech companies and international consulting firms have built big tech services units. Dell's efforts are coming at the tail end of that process, which is to say that they are hitting a market that is already over-crowded.
Douglas A. McIntyre is an editor at 24/7 Wall St.