Dell Thinks Differently About the iPad

You've seen the Apple (Nasdaq: AAPL  ) iPad and you know that tablet computers are the Next Big Thing(tm). But how do you invest in the revolution? Will Apple win or get crushed by Google (Nasdaq: GOOG  ) Androids and Hewlett-Packard (NYSE: HPQ  ) tablets? Will Qualcomm Snapdragon chips conquer all, or drown in a flood of Intel Atoms? So many choices, so little conviction!

Well, Michael Dell has another idea about tablet computing. Dell (Nasdaq: DELL  ) certainly plans to sell a few tablets of its own, powered by Android and Microsoft (Nasdaq: MSFT  ) Windows Mobile 7 alike. But put a gun to his head, and he'll tell you that the real action is in server systems. So even if the iPad does conquer all, Dell has a back-up plan for cashing in on this trend.

Wait, what?
Dell doesn't expect you to stick a big-iron server in your pocket, but he does suggest that the new usage patterns a tablet computer inspires will need much more support from data centers around the world.

When every service is hosted in the cloud and meant to be viewed on lightweight, low-powered tablets, it's up to the service providers to do the heavy lifting. And so he sees increasing demand for muscular processing power, endless storage systems, and fatter networking pipes -- all based on tablets taking off into the stratosphere.

Here's the pudding
We're in the very early days of this industry makeover, but Dell already benefits from big corporate customers building out their infrastructure. Dell's first-quarter sales came in at $14.9 billion, up 21% from the year-ago period and led by a 39% increase in server sales. Net margins expanded from 2.3% to 3%, partly thanks to that richer product mix, and earnings took a 47% leap to $0.22 per share.

Some of that marked improvement can be pinned on the tablet and smartphone tsunami, but a much-needed refresh of aging systems also helps. Less than 5% of enterprise-class Windows servers today run Windows 7 and Office 2010, by Dell's estimation, leaving an enormous landscape of untapped opportunity ahead.

Will the tablet craze be the catalyst that conjures up those corporate checkbooks at last? Michael Dell thinks so, and I think he's onto something. But what do you think, dear Fool? Can tablets create growth opportunities for not only the Apples of the world, but also the HPs and Dells, all for different reasons? Share your wisdom in the comments box below.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. Intel and Microsoft are Motley Fool Inside Value selections. Google is a Motley Fool Rule Breakers pick. Apple is a Motley Fool Stock Advisor recommendation. The Fool has created a covered strangle position on Intel. Motley Fool Options has recommended a buy calls position on Intel. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On May 21, 2010, at 3:20 PM, Tabletwise wrote:

    Great article. Shows up a part of Dell's communication strategy on how to stay in the race while building its product. Since the tablet topic is hot, not having any news on it is bad news. We're eager to see Dell's answer to the iPad! More thought on www.tabletwise.com.

  • Report this Comment On May 22, 2010, at 8:26 AM, peanutgalerygeek wrote:

    Sounds like a lot of wishful thinking to me. I.E., I'm getting my butt kicked on the client side so maybe I can get some of the action on the server side. Dell needs bigger machines to compete with Blade and other server clustering options. They also need to get into the network storage game as well. Server sprawl is becoming recognized as a big problem in data centers and steps are being taken to eliminate it. Buying lots of smaller servers ain't it. Buying individually bigger and more powerful servers is. HP and IBM are better candidates to clean up in this area.

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