Electronics Manufacturing – M528

A Look Into Dell and its Business Relationships

Dell has become a major player in the computer hardware market. Their main product lines consist of home computers, laptops, servers, and whole business solutions, further more they offer support for all of their products. Dell own a substantial part of the PC sales market, only recently falling behind Hewlett Packard (Wikipedia, 2007, Dell). By revenue alone, in the United States, they are ranked as the 25th largest company in 2006 (CNN Money, 2006, Fortune 500) and the 8th most admired company (CNN Money, 2006, Most Admired Companies).

It is not possible for a company to progress as Dell has without forming relationships and alliances with various other companies. In the past companies could do a lot for their self, requiring few external business relationships. However, due to vastly more complex products and higher turnouts, there is no choice but for companies to utilise other companies so that they are able to create and offer their products and services. Even the largest companies such as Microsoft require relationships; if they have no CDs or DVDs then they would be unable to sell any of their products.

This report aims to analyse three of Dell's significant relationships and see how they enable Dell to offer the services it does.

EMC, Helping expand Dell's product lines.

The EMC Corporation specialises in business storage solutions. These are generally high capacity, high bandwidth versatile storage arrays. EMC has grown to become the world leader in solutions for information management and storage (EMC, 2007, About EMC).

Dell first teamed up with EMC back in October 2001 with a 5 year contract. The idea was to develop networked storage systems for business corporations as well as home computer users (Dell, 2006, Dell, EMC Extend Multi-Billion Dollar Strategic Alliance Through 2011). EMC admired Dells direct business model and ability to supply to an extremely large range of consumers. The obvious advantage for Dell was that it would have access to, and be able to incorporate EMCs market leading storage products as part of its own business solutions. In these five years, Dell stated that more than 34 000 Dell/EMC branded systems had been distributed to more than 10 000 customers worldwide (Dell, 2006, Dell, EMC Extend Multi-Billion Dollar Strategic Alliance Through 2011). According to industry data, in 2005, the Dell/EMC collaboration was the fastest growing top-10 disk storage system vendor. This success led to the signing of a further 6 year contract on 12th September 2006 (Dell, 2006, Dell, EMC Extend Multi-Billion Dollar Strategic Alliance Through 2011).

This relationship extends further than EMC designing a product and Dell marketing it. From the outset both Dell and EMC implemented a unique model of sales, marketing, engineering and research. It must be noted that Dell also played an important role in the actual research of customer needs and ways to accommodate them. There have been numerous successful products which have resulted from this relationship, some of which are listed below (Dell, 2006, Dell, EMC Extend Multi-Billion Dollar Strategic Alliance Through 2011).

Dell opens the doors to AMD processors, increasing sales stability.

Up until May 2006, Dell used to be an Intel only manufacturer (The Register, 2006, Dell Hooks up with AMD). The rising success of AMD forced Dell to change their stance and start producing AMD based systems in conjunction with the Intel ones. Despite the success of the AMD desktop processors, it was the server processors that won over Dell. The AMD Opteron offered noticeable performance increases over the Intel Xeon in systems when more than four processors were involved (The Register, 2006, Dell Hooks up with AMD).

Although this new relationship between AMD and Dell is a hugely influential and substantial one, it had been on the cards for a long time. AMD had greatly cut down on Intel’s share of the processor market for both home PCs and server systems. By solely selling Intel processors Dell were eliminating nearly half of their potential customers.

By opening the doors to AMD, Dell not only increased the range of products that they could manufacture, they also greatly improved the stability of their sales. AMD and Intel are constantly biting at each other’s heals, switching places in terms of who creates the most powerful processor. Since the release of the AMD 64, AMD was a cheaper, more powerful choice when compared to the Intel counterpart. This is something which Dell wished to make profit on. Although currently Intel is leading the desktop market with their Core Duo range of processors, there is no way to predict what the market will look like in a years time. Dell is secure as it does not matter which processor manufacturer is leading the market, they are linked to both and therefore able to produce systems which incorporate the better processor.

Stability however, comes at a price. There is a drawback to Dell having a relationship with two differing manufacturers. Due to Dell not specialising in one processor, they are unable to form an exclusive deal with either AMD or Intel. This slightly increases the price at which they are able to obtain the processors. Although this is minimal when looking at a single processor, it does add up when considering the thousands upon thousands of processors which they purchase.

Microsoft gives Dell ultimate compatibility.

Microsoft operating systems are running nearly every home PC in the world. Due to this Dell have no choice but to advertise and ship their desktop PCs with the MS Windows operating system. If they did not then they would massively lose out on the home PC market. This relationship is one which Dell cannot live without. When looking at the Dell web-site it appears that the home systems are only available with Microsoft Windows. This is not the case, Dell are in fact happy to ship their systems with Red-Hat and SUSE versions of Linux. They are un-able to advertise this due to their licensing contract with Microsoft (Wikipedia, 2007, Dell). Users must explicitly request a differing operating system.

The Microsoft/Dell relationship is actually far more in depth than it first appears. Dell and Microsoft are also very closely linked in the enterprise market. They have started a comprehensive effort to offer real and better solutions for customers that span management of both hardware and software. Dell's scalable enterprise initiative is complementary with Microsoft's multi–year Dynamic Systems Initiative (DSI), aimed at reducing cost and complexity (Microsoft, 2004, Dell Unites with Microsoft to Provide Better Management Solutions). This is achieved by more closely connecting developer with the IT professionals. Ultimately Dell and Microsoft wish to drive down cost and complexity by managing an enterprise end–to–end.

Dell has realised that there is a future for Linux however, in home computing as well as the already well established Linux Enterprise Market. In very new developments, Dell has said that they are going to begin shipping PCs with the open source Ubunto version of Linux (BBC News, 2007, Dell to use Ubuntu on Linux PCs). Dell are ensuring that their hardware is fully compatible with Ubunto, however there are still major obstacles to overcome. The vast majority of commercial software is written to run on MS Windows Only. This is likely to mean relatively few Dell Linux PCs will be sold in the near future.

Wanting to stay loyal to Microsoft, Dell is catering for the Enterprise Linux market through them. Dell are the first major systems provider to join the Microsoft and Novell Collaboration. This business collaboration was created by Microsoft and Novell in response to customer demand for greater interoperability and intellectual property assurance (Channel Register, 2007, Microsoft-Novell partnership hooks Dell). In this agreement, Dell will purchase SUSE Linux Enterprise Server certificates from Microsoft. This means that Dell is still effectively dealing with Microsoft, even when dealing with a Enterprise Linux based operating system. Furthermore Dell will create a marketing program to help move over existing Linux users who are not Dell Linux customers to SUSE Linux Enterprise Server.

It is Unlikely to see a collapse between Dell and any of its major business relationships.

Every large company has many business links which form complex and fragile webs of reliability. Dell has been going through some troubles recently and as such has reformed their internal and external workings to create Dell 2.0. Even with these troubles Dell can be seen as a hugely successful company worth Billions of dollars. There are some relationships with smaller companies that Dell can afford to rework and change to gain profit, however the large relationships will always remain. In the foreseeable future Dell will need to stay closely linked to Microsoft, even if Open source operating systems grow in popularity.

The amount of indirect relationships that a large company such as Dell is part of is truly staggering. Dell relies on many different companies to supply the components for their systems. In turn each of these companies relies on their own set of direct business links. A broken relationship at the very bottom end of the chain can have effects that oscillate through the web of connections and have considerable effects on the top end companies such as Dell. This is one of the reasons that companies go out of their way, sometimes even cutting their profits, to stay linked with companies that are stable and dependable.

Reference List

BBC News. (2007). Dell to use Ubuntu on Linux PCs, Retrieved May 10th, 2007, from http://news.bbc.co.uk/1/hi/business/6610901.stm

Channel Register. (2007). Microsoft-Novell partnership hooks Dell, Retrieved May 10th, 2007, from http://www.channelregister.co.uk/2007/05/07/microsoft-novell_signs_dell/

CNN Money. (2006). Fortune 500, Retrieved May 10th, 2007, from http://money.cnn.com/magazines/fortune/fortune500/full_list/

CNN Money. (2006). Most Admired Companies, Retrieved May 10th, 2007, from http://money.cnn.com/magazines/fortune/mostadmired/top20/

Dell. (2006). Dell, EMC Extend Multi-Billion Dollar Strategic Alliance Through 2011, Retrieved May 10th, 2007, from http://www.dell.com/content/topics/global.aspx/corp/pressoffice/en/2006/2006_09_12_nyc_003?c=us&l=en&s=corp

EMC. (2007). About EMC, Retrieved May 10th, 2007, from http://www.emc.com/about/

Microsoft. (2004). Dell Unites with Microsoft to Provide Better Management Solutions, Retrieved May 10th, 2007, from http://www.microsoft.com/systemcenter/dell/default.mspx

The Register. (2006). Dell Hooks Up With AMD, Retrieved May 10th, 2007, from http://www.theregister.co.uk/2006/05/18/dell_picks_amd/

Wikipedia. (2007). Dell, Retrieved May 9th, 2007, from http://en.wikipedia.org/wiki/Dell