Note: Like everyone else in the industry, Dell is cutting out part of its business model to focus on cloud computing. Don’t use a newcomer for your hosting needs; sign up with NetHosting today to get a hosting provider with experience.
The hardware company announced that over the next three years, it will focus less on its PCs and more on IT services.
Earlier this month, hardware manufacturer Dell announced it would be cutting expenses by $2 billion USD in the coming months. The first prediction of course is that cutbacks and layoffs will be hitting the company in the near future. In the past, Dell has been a reliable and prolific hardware manufacturer for consumers and hosting providers alike, so why the sudden downturn?
In 2010, Apple released the iPad and personal computing fundamentally changed. Tablets have really hit the personal computer market where it hurts and Dell finds itself funding supply chains for products that aren’t flying off the shelves. Less than ten years ago, Dell was the golden child of PC sales. With a world-renowned supply chain that was the envy of every computer manufacturer around, Dell sold the majority of its equipment through its own website, not through third-party stores. And best of all, the final product was a quality product.
Dell might’ve gotten the first mover advantage but shortly thereafter companies like Lenovo and Asus picked up on the profitable business model and started applying pressure to Dell’s reign as PC hardware king. That fracturing of the PC market no doubt contributed to the crack that tablets found and exploited to take over the PC market. After Dell’s sales began to droop, Michael Dell came back to the company to operate once again as CEO and try to reverse the backward slide of his company’s revenues. Despite his best efforts, notebook revenues fell ten percent in the last quarter. However, PCs still make up fifty-four percent of the company’s total revenue.
The goal is to change that revenue percentage, hence the $2 billion USD getting trimmed. Michael Dell himself told analysts that the cutbacks will take place over the next three years and the focus will be the company’s PC business. More and more, the hardware company wants to push into IT services, consulting and software. This will be no small task, since these areas are already staked out by companies like IBM and HP.
Hopeful internal predictions within Dell peg thirty-one percent of next year’s revenues with these new IT services. Again, Dell already does some of these things; they just haven’t been the focus of the company’s business model. In 2008, IT services made up twenty-three percent of the company’s revenue. When this announcement came out, Dell stock traded for as little as $11.68 USD a share, which was the lowest they had been in almost two years prior.
Cutting back hardware to focus more on the cloud and services isn’t a new plan of action for aging PC businesses. And PCs aren’t being completely replaced any time soon. We highlighted HP and the layoffs announced for that company earlier this year as the company decided to look more towards the cloud. HP had bought Compaq in 2002, and that division still makes up thirty-one percent of Hewlett-Packard’s revenues. Currently, the company is considering moving its PC business into a separate company, and some investors are agreeing.
By comparison, thirteen percent of Apple’s revenues last quarter were due to notebook computers and desktops. Admittedly, Apple has focused specifically on the high end of the market, which is its own niche. That prevents the company from having to compete at all with low-end manufactures from Asia. However, as we know, other hardware is a huge part of Apple’s game plan. The iPad made up seventeen percent of the company’s revenue and the iPhone made up a whopping fifty-eight percent of company revenue.
If you’d like to read more about Dell and hardware, check out our blog post about the company trying to run cloud computing on ARM servers.