Big shift towards modular systems and less rigid IT infrastructure that requires tighter management and security
Dell believes it is well on way to becoming end-to-end solutions provider to help customers make this transition
THE problem with being a public-listed company is that you have to answer to shareholders who are usually more interested in quarterly dividends and short-term returns than in long-term visions. Risk and transformation can be dirty words in this game.
Dell Inc must have felt that way. When its build-to-order personal computer manufacturing business was under threat from low-cost manufacturers like Lenovo, it began to diversity into software and services via a series of acquisitions and revamps.
There were missteps along the way, but founder Michael Dell (pic) came back on board as chief executive officer of the Round Rock, Texas-based company in 2007 to take full charge of Dell’s attempts to remake itself.
Still, the pressure of having to deliver quarterly results must have distracted enough from focusing on the long-term transformation that in February this year, Michael Dell announced that his company was going private in a deal valued at US$24.4 billion.
Michael Dell himself, who currently holds 16% of the company, and global technology investment firm Silver Lake will acquire Dell Inc, with Redmond, Washington Microsoft Corp investing US$2 billion, saying it was doing so to support “the long-term success of the entire PC ecosystem.”
“Dell stockholders will receive US$13.65 in cash for each share of Dell common stock they hold, representing a premium of 25% over Dell's closing share price of US$10.88 on Jan 11, the last trading day before rumors of a possible sale began,” the Los Angeles Times reported.
“Dell said its board of directors, acting on the recommendation of a special committee of independent directors, unanimously approved the agreement,” the daily added.
The deadline for bids ended March 22, but Dell extended the deadline to March 25 (New York time), saying it was expecting to receive takeover offers from the Blackstone Group LP and activist Carl Icahn.
It’s not quite smooth sailing, with Bloomberg reporting shareholders Southeastern Asset Management Inc and T. Rowe Price Group Inc as saying they would vote against the buyout, “while billionaire Icahn wants Dell to pay a special dividend of US$9 a share if the deal fails. He has said that he’ll start a proxy fight to put up his own board candidates if Dell refuses.”
[UPDATE: Reuters reports Dell Inc as saying it has received alternative proposals from Blackstone Group LP and Carl Icahn that could be superior to the US$24.4 billion takeover offer from founder Michael Dell and private equity fund Silver Lake Partners. Click here for more]
While there is some dithering over the details, analysts were quite supportive of the move by Dell to go private, with Carter Lusher, chief IT analyst at Ovum, saying it “makes strategic sense.”
“Dell is in the midst of a wrenching transition from a supplier of commodity hardware, mainly traditional PCs, to being a supplier of enterprise-grade IT infrastructure,” he said in a statement emailed to Digital News Asia (DNA). “Dell’s ambition is nothing less than offering the entire IT stack with supporting services.”
However, Lusher warned that a “significant risk likely to face Dell during this transition is that enterprises and public sector organizations cut back on their purchases ‘until the dust settles.’
“The implication of going private is that Dell is planning radical changes to its strategy and product roadmap. While the company might come out of this transition stronger with a product line-up that better meets the needs of businesses and public sector organizations, there will be uncertainty as to what products and services stay, get strengthen, or get eliminated.
“Ovum sees effective communication to prospects and customers about its strategy and product roadmap as a, if not the, critical success factor to get through the transition,” Lusher added.
Aligned and all fired up
It is this need to communicate the company’s plans clearly that had Dell’s president for Asia Pacific and Japan, Amit Midha (pic), making the regional rounds recently as part of its field readiness seminar (FRS) sessions.
The FRS brings together Dell’s sales teams and account executives with global experts where they get to see first-hand the solutions the company is lining up, witness demonstrations and undergo training. The Kuala Lumpur session brought together its operations in India and South Asia, as well as Australia and New Zealand. China and Japan will have their own FRS.
“This is where we discuss company strategy, our new products, what we stand for and what our customers are saying,” Amit tells DNA, speaking at an interview in Kuala Lumpur recently.
“This is the time we synchronize, we align and we move forward,” he adds. “It can be very energizing and inspiring.”
When asked if there was any concern from Dell employees over what the company is doing, Amit was of course quick to respond: “On the contrary, everyone is fired up – the only top of mind they had was, ‘How quickly can I get this in my country, because my customers would have loved to have had it yesterday’.”
“So that’s good news; it means the vision we have is correct, the proof-points are right and all this is backed by the customers insights our sales teams and account executives are providing us,” he claims. “They are absolutely excited by this. There has been no concern about why we’re doing it.”
“They believe they can make big things happen with what we’re rolling out,” he adds. “It just intuitively feels right.”
Dell’s vision is to become an end-to-end solutions provider, and to do this, it has to ensure that its hardware, software and services strategies are aligned to this.
“Our vision for hardware cannot be any different from that for our software or services side,” says Amit. “All of that must come together to deliver solutions to customers.”
The company believes that it is actually well on the way to becoming an end-to-end solutions provider, with the ability to scale up and scale out. It is also building a lot of software to manage and protect this scaling, with the mantra for the Dell Software Group being “Transform, Connect, Inform and Protect.”
“These are the four areas that we will be connecting with, with all the IP (intellectual property) we have acquired, and these are the four that our customers are most concerned with,” says Amit.
The IP he is referring to comes largely from acquisitions, including the US$13 billion worth of acquisitions Dell has made over the last two years.
The big IT transition
According to Amit, the areas Dell customers are most concerned about are the transformation of their businesses to get ready for the cloud and virtualization; their need to connect more because of the Bring-Your-Own-Device (BYOD) and mobility trends; how to manage their data with analytics, big data and data mining; and where they store and how they secure their data.
“This falls in with our solutions to transform, connect, inform and protect,” he says. “There is a big transition happening on the IT side where individual vertical systems have to change to become more modular, more federated and better governed systems.”
“The reason for that is as you bring new things, such as BYOD and mobility, into the workplace, you no longer have a rigid IT infrastructure. There’s a lot more distributed computing happening, be it with smartphones, tablets or even thin clients,” he adds.
With new types of applications coming on board in businesses, companies will need a significant amount of flexibility in their IT infrastructure.
“If you have rigid, archaic vertical systems, you can’t be flexible – and this is needed not only at the hardware level, but at the application layer and the operating systems level,” says Amit.
All this would make for a more complicated IT world, he concedes. “This is where we come in – we are saying that you need to create an IT architecture that can leverage the public cloud. And you can do that by treating your internal IT architecture as a private cloud,” he adds.
Implementing IT infrastructure as a private cloud would not only companies to be more efficient and flexible, but would also get them more used to open standards and virtualization.
“When you start to do this, you get standardization and consolidation of applications, and the cost-efficiencies are tremendous. These savings can be re-invested into IT to enable new kinds of applications and use,” says Amit.
He notes that in the old days, much of a bank’s business revolved around opening up more physical branches, but these days a substantial amount of its transactions are web-enabled or electronic. The same shifts are happening in the airline industry with e-ticketing , for example.
“Growth is coming from new segments – what our customers are telling us is that if they don’t respond to these needs, their growth rate is going to be affected because 80% of their growth is going to come from this new web-enabled segment,” says Amit.
“You may miss some of this and your core business may still be safe for a while, but growth is definitely going to be affected,” he adds. “Our customers are saying that they need to respond to these changes in a much more systematic way.”
Singapore Exchange takes the plunge
Dell also believes that freeing up IT infrastructures to be more distributed and flexible would also allow re-investment into new areas and applications to target these new growth segments.
One example Amit rolls out is the successful completion of a project Dell’s services group had with the Singapore Exchange (SGX).
With a market capitalization of more than US$6 billion, SGX (pic from Wikimedia Commons) is among the world's largest exchanges and is Asia’s second-largest listed exchange.
“They realized that their old systems were not scaling well to what was happening in the marketplace,” says Amit. “Their mainframe-based maintenance cost was skyrocketing and they were not able to spend money on new applications.”
“More customers wanted to connect with SGX through the Web, and they could not spend the money to allow this because so much money was spent on maintenance,” he says.
SGX evaluated three options: Rewriting its mainframe applications; upgrading its mainframe; and re-hosting its applications to a modern, open platform. The exchange opted to re-host its application environment. Mainframe re-hosting offered the most cost-effective solution and involved less risk than rewriting, Dell said in a statement.
“They also did not want to start from the ground-up and rewrite all their applications for the x86 platform,” says Amit.
“So we came in with a proposal and said, let us help you migrate the applications -- we have a set of programs and middleware that can take what you have, and port them over to x86,” he adds. “it will give you agility and flexibility, and save you money that you can reinvest.”
Running a stock exchange on commodity hardware like the x86 platform seems like a risk, but not according to Amit, who points out that Nasdaq runs on Dell’s x86 servers .
“People don’t realize how robust the x86 platform has become. We’re used in hyperscale data centers,” he claims. “Anytime you go on the public cloud, if they’re using a branded server, 49% of the time, you will be going through a Dell – be it Microsoft’s Azure or Bing, Yahoo, Facebook, Jenga, LinkedIn or Salesforce.com.”
Dell claimed the project helped SGX improve the speed of a critical application by up to 100%, significantly lowering annual operating costs and better positioning its IT systems to align with future business initiatives.
‘On the right path’
“This is why our teams believe that Dell is on the right path,” says Amit. “We are the only company that is leading with this vision (of becoming an end-to-end solutions provider) – we have the proof points, and we have invested US$13 billion in the last two years to assemble the various technologies and tools to make this happen.”
The acquisitions he refers to include cloud integration vendor Boomi to help Dell integrate private and public clouds; data security with SonicWall; external security with SecureWorks; integration services with Perot Systems; data protection with AppAssure; software defined networking with Force 10; and even Make Technologies and Clerity, which were key in the SGX project.
“Force10 is a perfect example,” says Amit. “It’s taking these big chassis, complicated and highly expensive systems and defining them as more modular, federated, high-performance, high security highly-managed systems.”
“The more we do this, the more efficient and flexible our customers get,” he adds.
“All industries today are vulnerable to disruption. Basic shifts are happening every day, and that’s what we’re telling our customers – the best way to respond to these shifts is to create an infrastructure that is much more agile and a lot more efficient that can help you reinvest and help you respond.
“The only constant in technology is change, so we have to change to help our customers change,” he says.
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