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Dell Struggles in Post-PC World

The computing market is headed where {complink 1544|Dell Inc.} is weakest. The company has no easily recognizable offerings in the tablet PC or smartphone markets, but that's where demand is booming and not in the consumer and enterprise computer segments Dell once dominated and where it is still one of the leading players.

Dell isn't alone. Many other PC manufacturers that have yet to find their footing in the new world of small format computing are facing a similar problem — how to maintain product relevance in a market fascinated with tablets and smartphones and dominated primarily by {complink 379|Apple Inc.} and {complink 4751|Samsung Electronics Co. Ltd.}. Aside from these two rivals, the other competitors in the tablet and smartphone markets are hanging on tightly to wafer-thin market shares, fueling speculation that some of these may have to exit the sector to stop losing money.

It's not that Dell is losing money. The company has too many other competitive products to slide into the red simply because of declining demand for PCs from consumers and corporate buyers. For the fiscal 2013 first quarter ended May 4, Dell reported net income of $635 million, down from $945 million in the year-ago quarter. Sales fell 10 percent on a sequential basis and 4 percent year-over-year, to $14.4 billion from $15 billion in the first quarter of fiscal 2012. The decline was a surprise to both investors and even Dell executives who attributed it to poor sales execution, a weakening global economic environment, and pressure from competing platforms, essentially tablets and smartphones.

Brian Gladden, Dell's CFO explained further during a conference call with analysts:

    There are a few key causes to the [revenue] shortfall. Our sales execution was not up to our expectations, and we've made changes to improve this as we head into the second quarter. The demand environment was tougher than we planned, and I'd specifically highlight weaker demand in markets like EMEA and parts of Asia, in addition to public markets.

    Finally, we're seeing a more challenging competitive environment in a few areas of the business. Our notebook business contracted 10 percent, as we saw a more aggressive competitive environment, particularly in the entry level and emerging markets. We believe some of the tougher competitive environment can be attributed to channel inventory rebuilding, following the hard disk issues of the past two quarters. In addition, we're seeing more consumer IT spending diverted to alternative mobile computing devices. These dynamics impacted both our revenue and margins for the quarter.

As rising sales of tablet PCs and smartphones eat into demand for personal computers, manufacturers that don't have a strong position in the hotter product sectors have engaged in a savage PC pricing war to gain market share. Gladden said Dell was concerned “about the impact of the competitive pricing environment” but the company isn't in a strong enough position to withstand the onslaught. It has no compelling tablet or smartphone offering to rival Apple's iPad/iPhone or the Galaxy smartphone from Samsung. To keep its market share, Dell may have to dive again into the low-end PC market, an area it previously shunned to stave off downward margin pressures.

If Dell and rivals in the same position are expecting any relief from corporate IT spending, they should rather brace for a further pounding. Although enterprise IT requirements are typically different than those of the consumer electronics market, the dividing line is beginning to blur slowly. Enterprise users are transitioning more functionalities to tablets and largely ignoring desktop PCs. While demand for notebooks is expected to remain strong for a while, many companies are exploring the utility of tablets for workers, especially those in sales for whom mobility, ease of use, and graphics are highly important.

Dell executives insist they aren't too worried about sales erosion in the enterprise PC market. I think they should be. While tablets may not completely replace notebooks for some users, they are being used as supplementary devices and therefore reducing the amount companies can spend on other IT equipment. Said Stephen Felice, president and chief commercial officer at Dell:

    Consumer spending on desktops and notebooks continues to be under pressure, and much of the growth in Consumer has migrated to entry-level products in emerging markets, where we've chosen not to participate. We're also seeing some IT spending prioritized to purchase other mobile devices. Now this is mostly a consumer dynamic, but there is clearly some impact in areas of commercial as well.

While Dell is obviously unable to walk away for now from the PC market, it is intensifying efforts and broadening offerings in the fast-growing tablet sector. Again, it's not alone, and the tablet market is getting as crowded as the PC market once was. And that's a problem.

19 comments on “Dell Struggles in Post-PC World

  1. Barbara Jorgensen
    May 23, 2012

    I think you are absolutely right that Dell should be concerned with declining sales in the enterprise PC market. Yes, Dell is well-positioned there but as you point out, tablets are being used as supplements in the enterprise market. Not having a product–even if it is a tablet that leverages the heck out of your Dell PC — might not be a bad idea. I think Dell might be too late to break into the “I have the best tablet” competition, but providing a low-end tablet device–dare I say accessory?–may not be a bad idea.

  2. Taimoor Zubar
    May 23, 2012

    I think Dell has tried to make many inroads into the tablet market but the success has been very insignificant. I used Dell Streak for a bit and the product wasn't bad at all. In fact it was sleek and fast and also the price wasn't too high. I guess the product failed because of poor marketing by Dell.

  3. Nemos
    May 23, 2012

    “the tablet market is getting as crowded as the PC market once was. And that's a problem.”

    I have the same view as you and I think the table market is overcrowded now and that is a serious problem for companies like dell that didn't invest on this market yet.

  4. Clairvoyant
    May 23, 2012

    I agree as well. It definitely seems too late for any manufacturer to enter the tablet market and make any significant impact. Dell does still remain seated in the server market, which is anyways in need, and may even become a larger market if cloud computing takes off.

  5. elctrnx_lyf
    May 23, 2012

    I do believe if dell is not going to bring out some kind of innovative products like single box pc's to improve their sales. Tablet is certainly an option to look at also ….

  6. bolaji ojo
    May 24, 2012

    Barb, Perhaps even the concept of focusing on the low end tablet PC market may not be enough to save some of the players in the segment. Apple has locked up the market so tightly even enterprise users prefer the inconic iPad. In order to make a dent on the tablet market, Dell would have to go for functional enterprise users — the ones that are used for practical manufacturing and other enterprise functions. Even here too, Apple wants a role. Not having a standout product hurts.

  7. bolaji ojo
    May 24, 2012

    TaimoorZ, There are cheaper, good alternatives to the iPad in the market but they are not catching on with consumers and even business users. I don't know what to prescribe to these companies. Apple took the flag pole in smartphones and tablets, introducing products that have come to define the computing world, while rivals were napping. They've not been able to catch up since, except for Samsung in smartphones and Amazon with the Kindle in the low-end tablet market.

  8. bolaji ojo
    May 24, 2012

    Clairvoyant, Dell claims the decline is a result of failure to execute properly in sales. It has one more quarter to turn this around otherwise people will begin to question its overall growth strategy.

  9. Daniel
    May 24, 2012

    Yes Bolaji you are right. Now a day's more peoples/companies prefer for tablets and smartphones for their routine work, rather than desktop or laptop. Laptops are required only where there is a need for high computational power and storage requirements. So they have to shift their focus to these two sectors otherwise they may be in trouble like Kodak (once king in film & photography industry and now in big crisis).

  10. prabhakar_deosthali
    May 24, 2012

    Bolaji,

     

    In this context , I am interested to know how HP has fared in the last 6 months – its PC business and the Tablets .  Hp tried to enetr tablet market much earlier than Dell .

  11. bolaji ojo
    May 24, 2012

    Prabhakar, HP hasn't done that much better. It has announced the company will be cutting more than 27,000 jobs and it isn't back in the tablets market yet. It is going to be the subject of my next blog.

  12. Cryptoman
    May 24, 2012

    I think there is still a good market for notebooks in most technical areas of work. I agree that smartphones and nice looking slim tablets can replace the notebook of a CEO, salesman or a project manager, however, a notebook is still a very much needed tool for engineers who develop the smartphones and the tablets. Anyone who is involved in software and hardware development will also agree with me.

    I can see that the desktop computers are likely to become obsolete due to their chunky size and unportable nature. This inevitable trand is further accelerated by the growing power and portability of the netbook computers. Nowadays having a powerful notebook much more preferrable than having a brick wall shaped desktop on the side of a desk t work and at home.

    Although Dell's notebook sales may have taken a hit, I don't think this will be a growing trend. As long as corporations and individuals need notebooks, Dell will be able to sell powerful, reliable and good looking machines as it always have been.

    I don't think that tablets and notebooks are alternatives for one another. I believe they are complementary technologies in many ways and most people (like myself) prefer to have a notebook as well as a tablet to cater for all the computing needs.

     

     

  13. dalexander
    May 24, 2012

    Bolaji, Speaking for myself, I still have my iPad one and I use it more than my laptop which is doubling as my desktop when connected to a 27″ monitor. I have all the office applications and various tools to support my business expense tracking, contacts, productivity, and reference needs. I have a bluetooth keyboard for the iPad but I really don't use it much. Before I get out of bed in the morning, I have already checked my email, read EBN blogs, and Skyped with a few business partners and friends. My iPad is the main source of my chronic case of “Mophobia”… a CNET term for fear of leaving the house without all my mobile devices fully charged and ready for the day's demands. If I was a doctor, I would recommend taking one tablet daily and smart phoning me in the morning.

  14. bolaji ojo
    May 25, 2012

    Cryptoman, For some functions most people are still going to go with a notebook computer and that augurs well for companies like Dell that are still dominant in PCs. Even Apple is focusing on the PC market and has gained market share in recent years.

    Companies that have not been able to crack into the tablet and smartphone markets are still suffering, though. There are today many occupations which don't require as much intensive work as a design engineer might need to do, including sales people, for instance. This is where tablets are hurting PC sales. When it's time to replace the hardware needs of these people, it will come down to either the tablet or a large-screen smartphone.

  15. bolaji ojo
    May 25, 2012

    I tend to read a little before sleeping and sometimes I have online articles that I would reserve for the end of the day reading.Tablets are perfect for this and for catching up with the news as you noted. Right now, if I don't have to write as much as I do today, I would probably go for a tablet. They've become the new take-on-the-road device!

  16. mfbertozzi
    May 25, 2012

    Speaking for myself, I'm convinced one of the reason for PC sales' falling down is about different level of investments for PC and smartphone in advertising. We are assisting to ads flood for smartphones, but what about PCs or notebook? My feeling is that the picture is really different.

  17. Barbara Jorgensen
    May 25, 2012

    I recently sat next to a passenger on a plane that was using an e-reader. It tuns out she has the same user profile as me: home office worker, doesn't travel frequently, and prefers reading to working when possible. She loves her e-reader and finds she doesn't have the same issues on the road as smartphones and PCs. (Checking it in, turning it off, etc.) I'm beginning to plan my purchase of my next device…still wavering on tablet vs e-reader but I hope to test drive them all this weekend.

  18. dalexander
    May 25, 2012

    Bolaji,

    Good point. There are many portable apps like SalesForce.com and Sage Act with many versions under “Productivity” in the Apps Directory for both SmartPhones and tablets. People in sales probably have the biggest incentive to go mobile as they spend much of their time in airports and on the road.

  19. Anna Young
    May 28, 2012

    @Jacob, this is my thoughts too that Dell will certainly need to intensify efforts on tablet sector, if it's going to retain a viable market position in the PC market war.

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