August 20, 2010
Dell (Nasdaq: DELL ) really should reconsider the whole direct-to-consumers operation. The market is slowly making that decision for Dell, anyhow.
Second-quarter sales came in strong, rising 22% year over year to $15.5 billion. But most of that revenue climb happened in the enterprise segment, leading the charge with 35% stronger sales. Data center products like blade servers are a particular feather in Dell's hat, which makes sense because that class of hardware is ideally suited for running virtual server farms and cloud-computing services. Need I remind you that these twin revolutions are reshaping the corporate IT world as we know it? Dell's best friend right now is virtualization leader VMware (NYSE: VMW ) , followed by the virtual server divisions of Microsoft (Nasdaq: MSFT ) and Citrix Systems (Nasdaq: CTXS ) .
While the enterprise division waxes, Dell's consumer operations are waning. Once the pride and joy of the world's largest computer systems builder, consumer products now make up just 18% of Dell's total sales. That's probably a good thing in the long run, because this segment is notoriously margin-poor when compared to the less price-sensitive corporate computing market. I can't blame IBM (NYSE: IBM ) for giving up on consumers years ago, and I think Dell should follow suit.
Apple (Nasdaq: AAPL ) and Acer are catching up to Dell in the American market -- including both consumer and enterprise systems -- and Hewlett-Packard (NYSE: HPQ ) has owned the top American spot since at least last April. On a global scale, the hounds at Dell's heels are Acer and Lenovo. There's no leadership throne to defend, no pride to get hurt if a lost division makes an impact on these rankings.
If Michael Dell is on his way out anyway, this could be the perfect time to refocus and make Dell a single-minded mastodon of the data center. Dell's infamously slim margins will thank the board later, once they fatten up on corporate cash.