Michael Dell on the state of PCs and
Sep 2014 | 5:59 PM ET
Sep 2014 | 10:21 AM ET
CNBC's Jon Fortt spoke with Dell
CEO Michael Dell about the beauty of private structure.
down with Dell founder and CEO
a year after shareholders approved his bid, backed by Silver Lake and
others, to take the company private. Even without seeing Dell's
quarterly numbers, it's clearly been a good year: The PC business
turned around almost immediately after the transaction closed, led by
Dell's core customer: businesses. We talked about the state of the PC
business, whether he'll take Dell public again, and cloud start-up
rumors that Dell is
interested in EMC
been strong in storage. Historically you were a very big reseller of
Everybody's talking now about what's going to go on with EMC, because
now the activists are after EMC. How interested are you in the storage
businesses that EMC continues to be in, because you ratcheted back
your reselling of EMC and focused on Dell-owned storage technologies.
If pieces of EMC or its intellectual property come up for sale, might
you be interested?
first talk about what's going on in storage. If you look at the
storage market, some pretty big changes—enormous growth in flash, and
the storage elements are getting closer and closer to the processor.
That's certainly happening in disk space storage as well. In fact if
you look at it from a capacity standpoint and you combine the internal
storage in servers—remember disks are moving from external to
internal—combine internal and external together, we're No. 1 globally
in terabytes shipped in capacity. So we're very interested in the
storage market. Certainly as there are opportunities to expand
inorganically we'll consider those, but I don't have any comments on a
specific idea that may be out there.
Sep 2014 | 10:21 AM ET
CNBC's Jon Fortt spoke with Dell
CEO Michael Dell about Alibaba; technology IPO valuations,
and Dell's tablet growth strategy. Dell also discusses past
challenges and how they were overcome.
Do you think about M&A differently now that you're private? Is it
harder or easier based on the currency that you're dealing with now as
a private company?
done a number of acquisitions, really never used stock, we used cash.
We did an acquisition of a predictive analytics company recently,
StatSoft, about a million users around the world, so we'll continue to
make acquisitions. We do feel that with the tremendous number of
acquisitions that we've done over the last four or five years we have
all of the key technologies that we essentially need. And now we have
a big, organic engine that is creating more innovations. We'll file
more patents this year than we did last year, so the trend of
increasing our research and development absolutely continues. Also,
recognize, yes, we'll do acquisitions, but partnerships play an
important role. You can't buy everything, you can't do everything
yourself, so we're going to work with Oracle and Microsoft, and
there's a lot of great companies in the industry. And we'll continue
to leverage the hardware partner ecosystem that's been an important
part of what we do.
being a private company now
from being CEO of
So I'm trying to think what PC-era founder is still running his
company as CEO, and I've got Michael Dell and I'm grasping to figure
out any other names. What motivates you now to keep running this
company that's different than 30 years ago?
super-exciting time in technology, still. And if you think about
what's going on in the cost of access coming down, we're able to bring
technology to a billion more people, the impact it's having in society
is tremendously exciting. So look: If I wasn't doing it now, I might
be depressed because I love doing it, and I'd be bored because it's
fascinating and interesting stuff, and you think about what's going on
in the whole software-defined data center, the creation of these
hyper-efficient clouds to be able to serve up information more easily,
the enormous growth of small to medium sized businesses and how they
have access to technology, the cybersecurity challenges, the emerging
markets embracing technology, it's an enormous amount of fun. And to
top it off, we're private! Which is a whole lot of fun, too.
fun about being private?
We get to
be bold and lead without fear of the guidance. When you have a public
company, there's a lot of things that occur as people are thinking
about the next quarterly earnings statement. There's a 90-day shot
clock. So I'm sure there there are some good things that come from
that, but probably there are some bad things on a cumulative basis. So
we've been able to unleash a lot of innovation and risk-taking inside
the business, we've been investing more aggressively, we've got all of
our businesses growing at pretty nice rates now, we think faster than
the industry, and we're expanding and investing like never before,
because we're not afraid. It's just a whole lot more fun to be
thinking more about the medium and long term, and less about the short
China and Alibaba
you look at the
market? There are a number of companies having headaches there.
now up on some antitrust charges.
can't seem to get the iPhone approved over there in time to launch on
their networks. When you look at the opportunities and the dangers of
operating in that market, and now Chinese companies reaching out more
for a U.S. presence, what do you do? Do you pour more resources into
China? Do you put R&D there?
operating in China really since the mid-90s, and my first trip into
mainland China was in '89, so we've been there a long time. It's the
largest market outside the United States for Dell to sell our
products. We also buy a lot of things in China, so a lot going on
there. My belief is that the relationship between China and other
nations, it's incredibly dependent on each other. And we continue to
invest locally in China, building our business there, building up
relationships with local suppliers and partners. It's certainly got
its complications as you suggested, but it's a very, very large and
super-important country for us to be participating in.
IPO was the largest on record. A number of tech companies these days
are going public with a structure of founder control. Having been
pre-IPO, having been public, now being private again, what do you
think of that trend, and what do you think of Alibaba?
I know a
little bit about Alibaba, they're a great customer and we appreciate
the customer relationship with them very much. It's certainly been an
interesting company. It's been good to see
succeed so much with that platform. I've seen a few studies that have
shown that this founder-controlled shareholder structure seems to be
working well, empirically across a large number of companies. As a
private company that's not something we think about.
you ever go public again?
have any plans to do that, so we're enjoying being private. Look, we
get to take risks and be bold and not think about the short-term, and
it's certainly working quite well for us.
state of the PC business
ago people were afraid, particularly when it came to the PC business.
Folks who were looking at doing more aggressive bids than yours for
Dell got scared off by the PC business decline. Right after you went
private, the PC business seemed to turn around. So boy, did you get a
know, I think, look, there were a number of folks that looked at our
company, and a number of them bid, and the shareholder vote was over a
year ago. And it's absolutely true that there are lots of PCs out
there. That was true then, too. But if you look at the PC part of our
business: There are 1.8 billion PCs. About 35 percent of them are over
4 years old. That's not that different than it was a year ago. So I
just have a totally different view of this than many others, which is
that over time we will create products that are better than the ones
we made before. And that will compel people to want to replace their
old ones. That has in fact occurred, and that will continue to occur.
So for six quarters in a row now, we've been growing our share in the
PC market. Now the PC market's changing, right? You have tablets and
virtual machines, and the Internet of things, and workstations and
gaming and commercial PCs. It's a big space. We're doing well. We're
growing, and it's a good business.
seems like a few years ago you looked at Dell and you said it's about
efficiency in manufacturing. That's the secret sauce there. Microsoft
is about providing software to as many OEMs as they can. Apple's about
vertical integration. What is Dell about now that is unique and is
going to define its success?
bringing powerful solutions to our customers which are generally
businesses and institutions. We have a consumer business but there's
been a lot of focus at Dell on building solutions across the whole
spectrum. So this is a combination of hardware, software, services
together, to be able to virtualize an environment, build out a cloud
data center, enable a salesforce to be productive but secure at the
same time. We have some fantastic vertical strengths like in
healthcare I.T. where we're No. 1 here in this country and signing up
new hospitals and care providers at an aggressive rate. I will also
say that we continue to have a very efficient supply chain. Maybe some
people forgot that. But our cash conversion cycle and the ability to
produce the next generation of machines very efficiently continues. So
we just introduced our 13th generation of PowerEdge servers. We've
been in this business for 20 years. And we're growing, we're
expanding, as this goes to software-defined storage networking and the
whole layer 3 through 7, we're ideally positioned to attack those
markets and we're absolutely doing that. So a lot of the core
strengths that we've had, we continue to have those—they're showing up
in our strong cash flow and growth as a business—and we've built up a
substantial solutions capability. So half the people in Dell are in
services, and those are businesses that we're investing in expanding.
your expectation for what happens when the Windows XP portion of the
corporate PC refresh cycle really does peter out, if it hasn't
is getting a lot stronger. HP continues to be a competitor in the
space, both in the U.S. and globally. How do you position yourself to
continue to have success?
commercial PCs, according to IDC data, we grew faster than all those
guys in the last quarter. And so we're very focused on commercial even
though we have a fast-growing consumer business. Certainly a big part
of our growth is in the data center and software and services. I do
think that the replacement cycle is going to be an ongoing trend for
quite some time. Because as I said earlier, 1.8 billion of these PCs
out there, they're not all going to get replaced in the next six-nine
months. We're not ready for that, and neither is the world capacity
for memory, processors, displays, disk drives, etc. So this is going
to take some time. You also have the Windows Server 2003 expiration
which is going to drive the replacement of some 28 million or so
servers. And so we're very well positioned for that, particularly here
in North America with a very strong share, No. 1 in Asia-Pacific and
Japan, the only company in the top five to be growing in racks and
blades. I think the workloads are moving in our direction, and we'll
hold our own against the competitors. I will tell you that the kind of
absolute returns in our business are healthy, so the business is
strong, we're certainly paying down debt at a rapid rate, paying down
already $2.4 billion in the first six months of the year. But the
beauty of the private structure is that we get to focus our attention
essentially 100 percent on our customers. And so that's cranking out
all kinds of new innovations and services, and the growth has
accelerated. So it's a lot of fun.
making the services business work
confident that the services model has legs going forward? Because
Cisco is having some success at it, HP continues to struggle to be
profitable at the level that they and Wall Street would like in
services. What makes the difference?
financial level we're growing our services business significantly
faster than the American competitors, not as fast as the Indian
competitors, but we're somewhere in the middle. But growth has been
accelerating, we have a fabulous cybersecurity business called
SecureWorks. It's at the very top of the Gartner Magic Quadrant, and
we're signing up customers at an aggressive rate. And we continue to
grow carefully into new verticals.
you protect margins in that, because that's the trick, right? To have
healthy margins in a services business.
Expertise. And knowing what the customer's actually trying to
accomplish. So we're not winning based on having the lowest price,
we're winning because we know more about solving the customer's
problem and it's more valuable to them.
competitors trying to spread fear
inside your war room for those days or even hours after you announced
that you're going private, and
put out that release saying, "Oh, they're going through this process,
it's going to be chaotic, they're going to be off their game, you need
to come over to HP." The numbers show it seems you managed to execute
through that pretty well. What did you tell your team, what did you do
to communicate to customers what was going on inside Dell?
percent of the credit to the hardworking team members across the
company. 100,000-plus of them, who basically didn't get distracted and
stayed focused on serving our customers. And what I did was I told
them that it's going to be OK. I told them that, look, I'm very close
to the process, I can't tell you everything that's going on, but I
believe we're going to have a great outcome here, and it's going to be
OK, don't worry. Fortunately I had enough trust with the team over
30-plus years that they stayed focused, and you're absolutely right.
We gained share all through that period. Our Net Promoter Scores did
quite well. And our teams did not get distracted.
must have been worried about their jobs.
some of that, but that all in the end turned out to be just
were an early adopter of software as a service both internally and
externally to interface with customers, and that whole arena of social
has really exploded. Are the valuations getting out of control?
you can find a better guest to ask that question.
here. Not in this room!
going to opine on the valuations of ...
mean, when you look at things to buy—because you've purchased
companies in this space in the past, particularly when it comes to
dealing with small business, certainly those types of companies must
be more expensive now than they were three or so years ago when I
remember some acquisitions that you did.
we're free-cash flow people. So we absolutely look at getting a return
on our investment in a potential acquisition. And certainly some of
the prices are pretty inflated.
what goes up must come down. What's your tablet strategy? Do you think
of the tablet as being different from the PC? Do you view it at this
point as being an evolution of the PC? And as you look at the
commercial customer that's your core customer, how do think about how
best to serve them, in terms of form factor and the software you might
want to put on it?
We see the
notebook as a lineal descendant of the desktop, and the tablet is a
lineal descendant of the notebook. If you think about a tablet, a
keyboard, you separate those two, you put them together—now it's a
notebook. So, first half of the year our PC business, without tablets,
grew 15-16 percent. If you include tablets, it was up in the 20s. So
we have very, very fast tablet growth, both in Windows and Android,
and both in commercial and in consumer. And certainly there's growth
there. We see the 7 and 8-inch platform as more of a secondary machine
as opposed to replacement, but there's also this interesting 2-in-1
transformer-type machines, and that's a very fast-growing category.
And we're all over that. We just showed at the Intel IDF Forum a new
thinnest-in-the-world, 8.4-inch OLED screen tablet, 2560 x 1600
resolution, 3D camera, only 310 grams, fantastic, super-light tablet.
So we're absolutely in that space, and we see a full spectrum of
personal devices from high-performance workstations that we make for
Adobe Illustrator and Dassault Catia, Wall Street, the ultrarugged
machines that you can throw out of the 4th floor of a building and
they'll do just great. You can submerge them in water, run over them
with a truck, they keep going. To the commercial, managed secure,
reliable machines, consumer PCs—we've got the whole landscape covered.
were talking recently about ARM-based servers, saying that right now
Intel has got the solution out there that most customers want, who
knows what will happen in the future. How closely are you watching ARM
and 64-bit, trying to see whether there is a fit there in the future
for commercial customers?
important, and certainly if you look at the number of ARM processors,
as the cost has come down, it's a very successful platform for sure.
When you go into the business computing realm, you have this thing
called applications, right? Operating systems, it's a long tail. And
that takes some real effort and time. So look, I don't think it's
quite as simple as just showing up with a chip. And we already use ARM
processors in pretty large numbers in a variety of things that we
provide and products that we make. So this is really less of a
hardware/technical problem and more of an applications, software
ecosystem, getting the Linux or the LAMP stack on ARM, that's pretty
straightforward. But to get it enterprise-ready, that's going to take
some time. We're certainly happy for customers to have a variety of
choices, and as those ecosystems evolve, we'll be ready.
here talking about entrepreneurship among other things. How do you
define that now, 30 years into running what has been one of the
biggest and most recognizable names in technology? Do you still
consider yourself an entrepreneur?
I think entrepreneurship is about taking risk and embracing risk, and
looking at things differently and being unafraid. So yeah, that's what
we do. It's really fun. We need more of that in the world. You think
about where do the next billion jobs come from, they don't actually
come from big companies, they come from entrepreneurs, small- and
medium-sized businesses. And technology is enabling an enormous number
of those new businesses to get started.
coming enterprise shakeup
been talk of a shakeup starting in enterprise technology.
has talked about the number of companies that won't be around in a few
years. How do you feel from your dual standpoint. You're very much in
the enterprise market as a competitor, but at the same time you don't
have to be on the 90-day shot clock that you talked about. What's
going to determine which of the enterprise players is around in three
years, and do you agree there will be a winnowing, as Chambers
know if it will be quite as dramatic as John has suggested, but
certainly growth is important. There are some companies in our space
that have had a fairly long time since they've grown. We're not one of
them, we're growing. So at the end of the day, business is not
altogether that complex in the sense that if you have a business
that's growing its revenues, growing its profits, that's a good thing;
and if you have a business that is not growing either both or one of
those, that's not a good thing. So we're totally in the good category,
and our intent is to stay there. I think what's happening is, you've
got a number of these firms that have incumbent businesses. And they
become somehow reliant or dependent on their margin structure, and new
things come along like the software-defined network, or
software-defined storage, or network function virtualization, or the
microprocessor disrupts the minicomputer or the mainframe, or the
proprietary is disrupted by the open, and that creates a difficult
situation if you're trying to protect your profits. And so we grew up
in the microprocessor age. It's all about open, and I like to attack
new markets. Being a private company we have the real liberty to be
able to do that without a this obsession of the short-term.
ago, a year-plus, you were in the throes of this battle for the future
of your company. And it seemed to be especially personal because your
name is on the company. What kinds of conversations did you have,
maybe with your family, with your kids, about why you were doing what
you were doing, and a year removed from that, what are you proudest of
and what do you regret?
it was a lot harder than I thought it was going to be. And you guys
and others covered that story quite well—maybe too well. There was a
lot of made-up stuff that was in the ether there. I'm certainly proud
that—I thought it would go well? It's gone much better than I thought
it would go. What did I tell my kids and my wife? Well, until we
announced it I didn't tell them anything, because that's kind of the
way these things work. But once it was announced, I told them what I
was doing, why I was doing it, and it was a difficult thing, for sure.
But we got through all that, the business is doing really well, we're
growing and expanding. Like you said, our team at Dell really held
together and continued to persevere. So whatever challenges we had in
doing that it's all been worth it. We're super-excited about the next
chapters ahead. And I'm still a pretty young guy as far as CEOs go.
Certainly younger than the average CEO.
Certainly younger than Larry Ellison. Think you're going to stick
around until you're 70-plus?
We'll see. Could be.
you be private until you're 70-plus?