Michael Dell sends memo, of sorts, to HP

Dell CEO lists three reasons why selling a PC division is a bad idea

AUSTIN -- Michael Dell sees no benefit to a company splitting off its PC division, and he's probably wondering why Hewlett-Packard is considering such a move.

Dell Inc. this week is holding its first enterprise user conference. The event, which will take place here, will address subjects such as the increasing ability of x86 systems to handle high-end workloads and will include an early preview of Windows 8 from Microsoft CEO Steve Ballmer, who is slated to speak here on Friday.

But laced throughout this conference, either directly or indirectly, will be talk about HP and its very public consideration of either spinning off or selling its personal systems group.

For sure, Dell is capitalizing on this issue, going so far as issuing a press release this week touting a survey that found that some of HP's business customers are getting shaky over the Silicon Valley icon's direction.

But aside from the FUD -- or fear, uncertainty and doubt -- that such a move by HP might engender, Michael Dell, the chairman and CEO of the company that bears his name, Wednesday offered several straightforward reasons why selling a PC division isn't a good idea.

First, he noted, the PC sales are expected to grow.

"It's a growth market," said Dell, noting that there are 1.5 billion PCs in the world now and some estimates have that number growing to 2 billion in a few years. Moreover, he contends that smartphones and tablets are "augmenting" the PC. "We see our customers continuing to use PCs as part of the total solution," he said.

Second, he argued that getting rid of a PC division could lead to a loss of buying power leverage.

"There are also big economic reasons to be in the client business," said Dell. Client devices drive the vast majority of component use. For instance, about 95% of all disk drives in the world go in PCs, and the remainder are used in servers and storage. The same is true for microprocessors and memory: The majority of those component products are used in PCs. Therefore, a company with an in-house PC division would pay low costs for those products because its purchases would be on an enormous scale, said Dell.

Third, cutting out the PC business may be like sawing off the leg of a stool.

As Dell explained, "We know from our history that there is enormous connection from one device to another." He noted that his company sells storage products, systems management tools and other systems, and "the foundation of that business for us is the client business."

Charles King, an analyst at Pund-IT, said Dell speaks as someone who has been "legendary for understanding the ability to drive volume discounts and component discounts, and how to squeeze out every dollar."

In the Technology Business Research survey released by Dell, 46% of 130 HP business customers with at least 500 employees said that they "are now less likely to purchase HP products and services."

Asked to respond to Dell's press release, HP issued a statement that said, in part, that "HP continues to build on our market-leading foundation of servers, storage, networking, printing, PCs, software and services offerings to deliver higher value, more strategic customer relationships."

Regarding the possibility that it will spin off its personal systems group, HP said, "Our leadership is focused on getting this analysis done as quickly and accurately as possible, and we'll communicate it as soon as we can."

HP hasn't had any trouble selling PCs according to research firms Gartner and IDC, which on Wednesday both released their third-quarter worldwide PC shipments reports.

The Gartner and IDC reports both showed HP solidly in first place in the PC market, with strong third-quarter growth despite its announcement on Aug. 18, about midway through the quarter, that it was considering a spinoff or sale of its personal systems group.

IDC wrote in its report that HP "has been criticized for management missteps in the past few months, and has been affected by slower consumer demand in many regions, but managed to outpace overall market growth nonetheless."

Both IDC and Gartner put HP' shipment growth at 5.3% from the comparable quarter, while Dell's sales declined. IDC said Dell's shipments fell 1.6%, and Gartner put the decrease at 1.4%.

IDC estimated HP's market share to be 18.1%, and reported that Lenovo moved ahead of Dell for the first time. Lenovo's market share is 13.7% and Dell's is 12%, according to IDC.

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov, or subscribe to Patrick's RSS feed . His email address is pthibodeau@computerworld.com.

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