How Aggression is Actually Beneficial for Dell
Subhadeep is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Whatever be the ultimate outcome, one thing is pretty certain by now – this is one company that is not going to give up without a fight. Yes, I’m talking about Dell (NASDAQ: DELL), the company that is solely focused on its transformation from a hardware-centric to a software-centric company. Which is also absolutely the right thing to do, given that the company’s survival depends on it.
Dell knows that it just cannot make profits anymore by solely making personal computers, thanks to a slew of tablets and other forms of mobile devices. The company’s fallen to third spot among PC manufacturers worldwide, profits have somewhere taken a hit and it has had to do away with its handset business altogether. And so evolved the idea of transitioning to the data-centric, server-oriented platform.
Question is – how soon before the software division actually makes an impact on the company’s profit margins? As Dell’s management have themselves admitted, time is running out. The good thing is that the company is targeting around $5 billion of annual software-based revenue in the upcoming years. While an actual time frame has not been spelled out as yet, what we do know is that the company has been aiming at around $1.5 billion worth of software sales within the coming 12 months. At that pace, the rate of transformation would certainly be greater than that of rival IBM (NYSE: IBM), which took an entire decade to turn around its business. And Dell’s recent string of acquisitions (a whopping 16 over the last couple of years), including the upcoming one of Quest Software, only goes on to highlight the intense dedication with which its following this route. The company is also zeroing in on the midmarket customer segment, which makes it a competitor to Hewlett Packard (NYSE: HPQ), apart from IBM. Incidentally, Hewlett Packard also attempts to merge its PC making and printing divisions together, as a part of its transitioning efforts into a software-oriented organization.
The Dell Fluid Data Storage Fund is also another example that it’s aggressively diversifying its business. The company is intelligently using its cash stockpile to fund start-ups in the areas of enterprise and cloud storage, widely acknowledged to be the future of modern computing. A good effort to secure its own future, I must say, which is also perhaps the reason why it has jumped so excitedly on the Microsoft (NASDAQ: MSFT) Windows 8 bandwagon. And now that the company is announcing its own dividend policy, Dell is surely giving investors a lot to cheer about.
Having said all that, Dell should know that caution is the need of the hour. The company’s overt reliance on the Chinese market may not prove to be so fruitful after all, given that emerging markets are actually generating growth that has proved to be far less than expected. Keep in mind that this is one company that has failed to adapt itself to technological changes at one point of time, with the failure of its smartphones and tablets being proof enough of that. I would certainly keep a close watch on Dell for some more time just to see how it shapes up for the future.
subhadeeptech has no positions in the stocks mentioned above. The Motley Fool owns shares of International Business Machines and Microsoft. Motley Fool newsletter services recommend Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
