Where's the Channel in Dell's Surprisingly Good Earnings Report?

 
 
By Larry Walsh  |  Posted 2009-08-28 Email Print this article Print
 
 
 
 
 
 
 

Dell surprised Wall Street minutes before the closing bell of trading yesterday by releasing better than expected quarterly earnings and profit report. Analysts had expected recession and competitive pressures to keep Dell's earnings in check and cap margins at 17.7 percent. But Dell shocked The Street with margins a full percentage point higher.

Does the channel deserve some credit for this dramatic turnaround? You can't tell by reading Dell's financial report or listening to the analysts briefing.

In an after-hours conference call with press and analysts, Dell credited its dramatic turnaround to aggressive cost cutting and "disciplined pricing" to compete against rivals Hewlett-Packard and Acer. The closest Dell comes to crediting its indirect channels is veiled references to "partnerships," demand among public sector customers and increasing consumer sales.

More so than other tech hardware manufacturers, Dell was hit hard by the recession and competitive market pressures. Increasing component costs, competitors lowering prices and the collapse in enterprise tech sales - its traditional bread and butter revenue stream - put the brakes on the Dell juggernaut. Some people credit these forces into pushing Dell to develop multiple indirect sales channels - business to business, direct market resellers and retail.

Bright spots in Dell's financials include stronger than expected sales in servers and storage equipment - particularly through its channel-driven Equal Logic acquisition - and increasing demand for professional and managed services, which is a revenue stream split between direct and channel partners.

What would be nice to hear is how Dell's indirect efforts are doing? How are its relationships with Ingram Micro and Tech Data paying out? Are its public sector partners - particularly among state and local government service providers - performing? Where is the growth coming from in professional and managed services - direct or indirect? And how much of the cost-cutting is a result of shifting some of the sales burden to business-to-business sales partners?

Last week, we wrote about how Dell's ambitions in expanding professional services is making some resellers nervous. When Dell was simply a direct sales organization, many VARs and managed service providers would design systems and instruct their customers on how to order components direct from Dell. They would get the high-margin services work without the hassle of having to deal with the ordering and logistics with the manufacturer. But now that Dell is eyeing a greater share of the services market, some solution providers say they're seeing those opportunities evaporate or, worse, put their services business at risk.

In the earnings report and call, Dell notes that it sees increasing opportunity in professional, managed and cloud-based services. The direct managed services offering that's gradually being expanded nationwide continues to raise concern among solution providers and Dell partners. However, Dell channel chief wrote on the Channel Insider blog last week that Dell has a three-step services strategy with the channel. He wrote:

1. Support channel-delivered service sales where our partners maintain expertise: Dell technology continues to create service opportunities that are the lifeblood of the channel and we encourage our partners to offer services where they maintain expertise. Virtualization, Storage Architecture, Design, Implementation, Imaging, Maintenance and Support... these are just a few areas where our partners specialize.

2. Collaborate with partners where we can add value to our mutual customers: Dell's very first Certification area under Partner Direct was Managed Services. Through the acquisitions of Silverback and Everdream, Dell continues to offer robust remote monitoring/management platforms, as well as its Business Builder consulting program, to help MSPs succeed in the lucrative managed services market. Dell's Warranty Parts Direct program is available at no fee to Dell certified partners and at a nominal fee for any Dell partner who wishes to participate. Dell is actively working to identify new areas where collaborative services with partners may deliver value to customers.

3. Augment partner service gaps by enabling Dell services for resale: Dell has started to make its services portfolio available for channels to resell and will continue to expand its channel-enabled services in the coming years. The goal of this progam is to make Dell a "go to" partner for services that partners choose not to provide on their own. Today, Dell offers ProManage Managed Services for small business to partners who may not have the in-house expertise or staffing to deliver their own managed services. Dell also offers its remote virtualization readiness assessment for small business to certified partners who wish to leverage the IP Dell has built to compete with low-cost VRA offers from the likes of CDW.

It's obvious that Dell's channel partners on all levels are having an impact on its sales and revenue performance. As it continues to do battle with market-leader HP and stave off number-three challenger Acer, it would be nice that Dell both give credit to its channel for its surprisingly good quarterly results as well as indicate how the channel will contribute to future growth.

 
 
 
 
 
 
 
 
 
 

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