Michael Dell sends memo, of sorts, to HP

Dell's CEO lists three reasons why selling a PC division is a bad idea

Michael Dell sees no benefit to splitting off a PC division, and is probably wondering why Hewlett-Packard is even considering such a move.

Dell Inc. is holding its first enterprise user conference in Austin, Texas, this week with a number of themes, including the increasing capability of x86 systems to handle high-end workloads and an early preview of Windows 8 from Microsoft CEO Steve Ballmer, who is slated to speak here on Friday.

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But laced throughout this conference, either directly or indirectly, will be talk about HP and its very public consideration of either spinning off or selling its personal systems group.

For sure, Dell is capitalizing on this issue, going so far a issuing a press release this week touting a survey that found that some of HP's business customers are getting shaky over the Silicon Valey icon's direction.

But HP FUD (fear, uncertainty, doubt) aside, Michael Dell, the chairman and CEO of the company that bears his name, Wednesday offered several straightforward reasons why selling a PC division isn't a good idea.

First, he noted, the PC market growing.

There are 1.5 billion PCs in the world and estimates are that there will be 2 billion PCs in a few years, "so it's a growth market," Moreover, Dell says that smartphones and tablets "are augmenting the PC. "We see our customers continuing to use PCs as part of the total solution," he said.

Second, he contended that getting rid of a PC division could lead to a loss of buying power leverage.

"There are also big economic reasons to be in the client business," said Dell. Client devices drive the vast majority of component use. For instance, about 95 percent of all disk drives in the world go in PCs, and the remainder in servers and storage. The same is true for microprocessors and memory, and so from a cost standpoint you can have enormous scale, said Dell.

Third, cutting out the PC business may be like sawing off the leg of a stool.

Or as Dell explained, "We know from our history that there is enormous connection from one device to another." The company sells storage products, systems management tools and other systems to clients, Dell said, and "the foundation of that business for us is the client business."

Charles King, an analyst at Pund-IT, said Dell speaks as someone who has been "legendary for understanding the ability to drive volume discounts and component discounts, and how to squeeze out every dollar."

The Technology Business Research survey released by Dell found that 46 percent of 130 HP business customers with at least 500 employees "are now less likely to purchase HP products and services."

Asked to respond to Dell's press release, HP issued a statement that said, in part, that "HP continues to build on our market-leading foundation of servers, storage, networking, printing, PCs, software and services offerings to deliver higher value, more strategic customer relationships."

As for the continued possibility that it will spin off its personal systems group, HP said that "Our leadership is focused on getting this analysis done as quickly and accurately as possible, and we'll communicate it as soon as we can."

HP hasn't had any trouble selling PCs according to Gartner and IDC, which on Wednesday released their third quarter worldwide PC shipments reports.

The reports from both research firms showed HP solidly in first place, with strong growth despite the company's announcement on Aug. 18, just about midway point of the third quarter, that it was considering a spinoff or sale of its personal systems group.

IDC wrote in its report that HP "has been criticized for management missteps in the past few months, and has been affected by slower consumer demand in many regions, but managed to outpace overall market growth nonetheless."

Both IDC and Gartner put HP' shipment growth at 5.3 percent from the comparable quarter, while Dell declined 1.6 percent. according to IDC and 1.4 percent, according to Gartner. IDC put HP's market share at 18.1 percent, Lenovo, 13.7 percent and Dell at 12 percent. Lenovo moved ahead of Dell for the first time.

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov, or subscribe to Patrick's RSS feed. His email address is pthibodeau@computerworld.com.

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This story, "Michael Dell sends memo, of sorts, to HP" was originally published by Computerworld.

Copyright © 2011 IDG Communications, Inc.

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