Looking for Winners - Dell

It's easy to recognize a company in the winner's circle.  Like Apple or Google.  Most of us want to know how to spot the winners early.  And that can be hard, because often the reported information will make an emerging winner sound horrible.  Like the expected demise of Apple in 2000.

Last week Dell reported sales and earnings, and valuation fell (Marketwatch.com "Dell Shares Fall as Company Net Slips").  The article notes that sales were "surprisingly strong," but claims that a dip in profits was bad news sending the stock price downward.  Of particular concern was a lack of growth in desktop PCs.  Many analysts are expecting (I should say hoping) that System 7 is going to spur additional desktop sales and are upset that Dell isn't getting "its fair share" versus Hewlett Packard.

This is entirely the wrong way to evaluate Dell's results.  Simultaneously, the Mobile unit had very strong performance.  As did Services, greatly aided by the Perot acquisition.  As I blogged months ago, Dell has started moving in a new direction.  Toward the growth markets of mobile devices and the need to build out applications using Cloud computing architectures.  These markets are certain to grow in the future.  Meanwhile, desktop PC sales are destined to decline.  There is no doubt about this.

Dell has been undertaking some Disruptions, and using White Space to develop and go to market with new products in these newer, growing markets.  Amidst this effort, it has put less money into the hotly contested and profit-margin-declining old fashioned PC business.  This is clearly the right move.  If Dell is the first and strongest to transition to new markets it has the best chance of regaining old growth rates.  For Dell, the best thing possible is to see it growing beyond anticipation in these markets. 

Some analysts complained that both mobile and services are too small as businesses at Dell, and therefore the company needs to put more resources (meaning price actions) into traditional PCs.  These same analysts will lambaste Dell when the market shift is completely pronounced and the traditionalist (which now appears to be HP) is left in decline.  Dell has used White Space to begin launching products.  If it uses these White Space efforts to learn the company can become smart, faster than other competitors, and "jump the curve" from its old business/market to the new one.  Isn't that what every business needs to do?

What we want to see now is ongoing investment in these growth markets, with breakout products that can make a big revenue difference.  White Space is good, but it is critical that Dell invest fast and smart to replace old revenues as quickly as possible.

I was encouraged by Dell's results.  The company is growing where it needs to, and de-emphasizing businesses that can become slaughterhouses.  For investors, employees and suppliers this is a good thing.  When companies are using White Space it is easy to beat them up and ask them to "refocus" on traditional markets.  It also can kill them.  Here's hoping Dell stays on track.

Comments

[used computers]

Some analysts complained that both mobile and services are too small as businesses at Dell, and therefore the company needs to put more resources into traditional PCs.