Sunday, 18 June 2017

Gulf Business/Robert Anderson: Michael Dell on creating a technology behemoth


Gulf Business

Interview: Michael Dell on creating a technology behemoth

Nine months after completing his company’s mega merger with EMC, tech billionaire Michael Dell details his vision for the future

Robert Anderson
Sunday 18 June 2017


The world of technology has often been one defined by rapid change, innovation and a constantly altering landscape.

But these words perhaps fail to do justice to the transition American business magnate Michael Dell has overseen over the last few months.

In September, his firm Dell Inc completed one of the largest technology deals ever with its $67bn acquisition of EMC Corp, creating an IT giant with business units spanning from PCs to cloud computing, storage and cyber security.

Yet for all the complexities of the task at hand and the substantial portfolio he now oversees as chairman and CEO of the newly named Dell Technologies, there is a sense that Michael Dell is relishing the challenges and opportunities the combination is bringing.

“I would say it’s actually gone better than planned,” a jubilant Dell explains to Gulf Business.

“We had theorised and dreamed and had ideas about how the combination would be – about creating Dell Technologies with Dell and EMC and VMware, Pivotal, SecureWorks, Boomi and RSA. The reaction from customers and partners has been overwhelmingly positive.”

And as we begin a lengthy interview the tech mogul, with a net worth estimated at nearly $21bn, is keen to emphasise he is only getting started as the company embarks on a two-year vision to become the world’s leading technology infrastructure player.

A global vision

May’s Dell EMC World conference in Las Vegas – which was the $74bn firm’s biggest combined event to date – seemed a fitting venue to show off its progress in integrating its complex and varied portfolio.

A series of slides shown during the conference outlined what the company deemed to be its key accomplishments since closing the deal including expanding and integrating its offering, improving time to market, cutting costs, improving scale and introducing more flexible consumption pricing for customers. But executives also emphasised the real work was
only beginning.

Under a comprehensive two-year strategy, Dell Technologies aims to become a clear leader in IT infrastructure and client solutions, be recognised as an expert in digital transformation, provide the strongest multi-cloud portfolio on the market and produce business-driven security products and services all under a comprehensive array of solutions and consumption models.

Dell is now selling this vision across the world, including the Middle East. Some 50 projects to combine Dell and EMC office space and other facilities are taking place in the region alone and the man at the top has been keen to reassure the company’s partners and customers – which include Dubai Smart Government, Gulf Air and Kuwait National Petroleum – of the benefits its new scale will bring.

In April, he was in Dubai to champion Dell Technologies in a series of key meetings as the firm continues to make significant investments in its regional channel partners to cross sell products to existing Dell and EMC customers.

“What I saw when I was there was somewhat similar to the reaction across the world – a full embrace,” Dell says of the visit.

“I saw people from government and academia and business all throughout the region that were engaging with us in a new way because of the combined capabilities that we have.”

And now the company is seeking to capitalise on an uptick in IT spending in the region after a number of projects were halted following the decline in oil prices in 2015 and 2016.

Research firm IDC said in November it expected ICT spending in the Middle East, Africa and Turkey to pick up in 2017 after what it described as a “particularly challenging year”.

The company forecast ICT spending would grow 3.6 per cent to $243bn this year, from a 1.6 per cent anticipated growth rate in 2016 with the UAE predicted to be the second largest spender at $6.2bn.

“Obviously there have been challenges from an oil perspective that I think had dampened demand in some elements of the region. We’re definitely starting to see that become stronger,” says Aongus Hegarty, president of commercial business for Europe, Middle East and Africa at Dell EMC.

“There is an enhanced focus around the importance of technology and digital within the future of the Saudi economy and other economies across the Middle East as well so I think [there is] a realisation that you can’t hold that back for too long.”

As a sign of this shift a number of Dell Technologies’ key partners attended Dell EMC World to gain an insight into what the future will bring.

Product launches ranged from new 14th generation servers, to a broader cloud portfolio with more flexible pricing, storage and data protection solutions and a PC as a service offering, which will be gradually rolled out across the Middle East in the coming months.

But perhaps just as indicative of the company’s intentions was the unveiling of Dell Technologies Capital – the company’s secretive venture practice, which invests approximately $100m a year in start-ups.

“Dell Technologies Capital is coming out of stealth mode if you will – partly because we’re a little bit too big to be hiding in the shadows,” Dell explains.

“We’re making big investments and having big investments in some of the more important next generation companies.”

Examples of these next generation companies highlighted during the unveiling included bio analytics specialist Edico Genome and machine learning acceleration specialist Graphcore.

“Our industry is characterised by a constant creative destruction where there are new firms being created, new ideas being thrown up, and some of them really work out well and some don’t. That creative destruction that occurs is an important part of the evolution and revolution that occurs within our industry,” he adds.

Elsewhere, Dell is keen to emphasise the company has its finger on the pulse of the IT industry and the popularity of billing per usage price models championed by the likes of Amazon Web Services, Microsoft and Google.

In this he suggests rather than sticking to one model the company is keen to give customers more choices even in the case of physical hardware like PCs and the area of hyper-converged infrastructure.

“One of the attractive elements of the public cloud has been its consumption pricing, so we’re essentially applying that same idea to the on-premise equivalent. We’ve had enormous positive response from customers that we’ve already tested this in market and we think it’s going to be big,” Dell says.

But while the firm may be replicating some of the pricing structure of public cloud players – and in the case of several units including Pivotal and VMware, working with them for interoperability purposes – he is also keen to emphasise that it won’t be replicating them with its own comprehensive offering.

The company has repeatedly stated its commitment to the hybrid cloud model, which envisions companies using a mixture of on-premise private clouds and third party public clouds. On stage at Dell EMC World, Dell even suggested a large number of customers were returning to buying physical equipment because they were finding public cloud costs twice as expensive as running their own hardware.

“Our point really is that it is a multi cloud and there are going to be workloads and instances where there is an appropriate place for every workload for every customer, but it’s not all one answer,” Dell explains.

“It’s also dynamic as we make the on premise systems more automated and more modern and we do things like create this cloud flex pricing that’s going to be very attractive for many workloads.”

Research commissioned by Dell EMC and conducted by IDC shows that 79.7 per cent of organisations with 1,000 employees or more already have a hybrid cloud strategy and 51.4 per cent already use both public and private cloud infrastructure. Despite this, public cloud services market is still expanding rapidly, with projections from Gartner suggesting it will grow 18 per cent this year to total $246.8bn.

Another area Dell is keen to emphasis his support for is the company’s PC unit, which took its first steps more than three decades ago when he established an informal business assembling and upgrading computers while a student at the University of Texas.

PC sales have continued to decline in recent years, with research firm IDC saying in January that global shipments for 2016 were down 5.7 per cent year-over-year to 260 million units.

Dell Technologies was among the few vendors to increase its market share last year with a 4.3 per cent increase in shipments to 40.7 million. This placed it third with 14 per cent market share globally, compared to 21 per cent for HP Inc and 21.3 per cent for China’s Lenovo.

Given these figures, Dell is keen to emphasise the market is far from dead and he says the company has continued to increase its market share and average sales price for 17 straight quarters, with an 18th expected to follow in Q2.

“I think there is too often a tendency to say everything is going this way or that way like the death of the PC for example,” he says.

“I think 4 billion PCs have been sold since the PC died so that’s been pretty good for the PC.”

Digital transformation

Another trend Dell Technologies is keen to tap into is digital transformation as companies across the world seek to incorporate new digital technologies into their products and business activities to improve performance and efficiency.

Audit and consultancy firm PwC forecast in an October report that Middle East industries are set to invest $42bn each year in digital technologies by 2021, creating a sizeable market for companies helping to facilitate this change.

Although he admits the term has perhaps been overused, Dell argues the associated optimism with digital transformation is real and means big things for technology players the world over.

“There is always some element of overhype but once you get past that there is a reality there,” he says citing exploding data demand, the growth in connected devices, the huge amounts of information now being generated and artificial intelligence engines being developed to understand it.

“We think of it as the fourth industrial revolution – it’s an explosion in new opportunities and it will take a different form in each organisation based on what their industry looks like and what their competitive field looks like. We’re seeing all of our customers needing to reimagine their companies in some way in the context of this new digital age.”

As this disruption takes hold, Dell suggests the various parts and products of his firm remain relevant even as rivals like HP continue to shed business units and downsize.

On the same day Dell announced the completion of the EMC acquisition in September last year, HP Enterprise said it would sell its software business to Micro Focus for $8.8bn. This followed the spin off and merger of its technology services unit in May 2016 to Computer Sciences Corp in a deal valued at around $8.5bn.

“We continue to develop and enhance all of the businesses we’re in, we don’t see them going away,” Dell says.

“Clearly there are some areas where there is a consolidation underway, customers need new capabilities whether it’s security, or the infrastructure, or the tools to be able to take advantage of all these new skills and ideas, but the infrastructure revolution and the evolution of the IT organisation – that continues to be a foundation for digital transformation. You can’t transform your business digitally if you haven’t modernised.”

As part of his argument Dell has repeatedly emphasised the benefits of his firm’s private ownership – after negotiating a $25bn deal to take Dell off the stock market in 2013 – in an industry where shareholder pressure can lead companies to seek quick results.

He suggests private ownership for Dell and EMC means greater flexibility and agility and an “advantaged” financial structure compared to when both firms were listed.

“Let me go back a little bit to when Dell and EMC were public. The two companies together spent about $5.5bn a year on share repurchase and dividends and interest expense. As a private company our combined interest expense is a little less than $2.2bn now, so it actually costs less to be a private company than a public company and that’s a distinct advantage,” he says.

The chairman and CEO also believes the firm is now much more long-term in its outlook than it was previously.

He dismisses the idea of thinking about a company in 90-day increments as “kind of silly to begin with”, and suggests a better question to ask is “how do you think about your company in five years, 10 years and 20 years?”

“That’s the luxury we have as a privately controlled company,” he says.

But is this to say Dell Technologies will remain private for the foreseeable future?

“Maybe ask me in another five or 10 years,” he jokes.

“We do have two public companies within the group – VMware is public and SecureWorks is public – but don’t have any plans,” he adds.

And as we close the interview it is clear the 51-year-old has every intention of sticking around to answer these questions in the future as he looks to some interesting years ahead at the helm of Dell Technologies.

“Why would I leave now? We’re getting to the fun part here,” he says when the subject of retirement is brought up – although a $1bn endowment for social entrepreneurship announced by the Michael & Susan Dell Foundation last month suggests the world’s 39th richest person is also increasingly turning his eye to philanthropic efforts.

“Our company is a third of a year old now and what’s happened in the last three decades in terms of IT, I think will be seen as child’s play compared to what happens in the next three decades,” he says as we part ways.

No doubt he– and Dell Technologies – look forward to playing a big part in those developments in the coming years.
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