Dell Credits Channel For Server Market Share Gains Despite LBO

Dell's market momentum continues to surge ahead despite questions that have been raised about the company's future in the wake of its plans to go private, based in large part on the strength of its channel efforts.

Since plans for a $24.4 billion leveraged buyout led by Silver Lake Partners were disclosed on Feb. 5, Dell has lived through threats of lawsuits from big-name investors, the coming and going of other potential bidders, an 11 percent drop in fourth-quarter sales and questions as to whether founder and CEO Michael Dell will even remain at the helm.

It's been an eventful, if not bumpy, last couple of months at Dell, to say the least.

Yet through it all, Dell has gained share in the server and PC markets during the first quarter, according to recently released market data.

"There is no denying the facts," boasted Michael Dell in an interview with CRN after reviewing preliminary data from market researcher IDC that showed his company gaining first-quarter unit server share both in North America and worldwide. "HP is losing share at a staggering rate, and they are losing it to Dell," Dell said.

Dell credited his company's channel focus with being critical in driving the server share gains. He said Dell's channel server sales are growing faster than the company's direct server sales. "We have channel momentum," he said. "There is no question about it. And we also have awesome products."

Dell maintained its positions as the No. 1 server unit vendor in the North American market and No. 2 worldwide. HP is the No. 1 server vendor on a worldwide server unit basis and No. 2 in North America, according to IDC.

IDC's preliminary data shows Dell grew its first-quarter North American server shipments by 9.9 percent, while HP's dropped 18.9 percent.

On a worldwide basis, Dell's first-quarter server unit shipments grew 5.7 percent while HP's declined 15.4 percent compared to the previous year, according to IDC.

For its part, Gartner disclosed preliminary first-quarter numbers that showed Dell's unit server shipment share was up 2.6 percent in the first calendar quarter, compared to the year ago quarter. HP's share during the same period was down 15.2 percent compared to the year ago quarter, according to Gartner.

Dell also garnered a slight market share gain in the global PC space as rivals Hewlett-Packard, Acer and Asus all lost share, according to IDC. Only Lenovo gained more share among the top five PC makers, according to IDC.

HP said in a prepared statement that it remains the worldwide server market share leader. "One quarter does not make a trend," said the Palo Alto, Calif.-based company in a statement supplied to CRN. "We've been the leader for 17 years and now 68 quarters, (according to the IDC preliminary report). HP continues to be at the forefront of the data center evolution, accelerating the pace of innovation and industry-leading server technology for our customers, (e.g. Moonshot, SDN, CloudSystem, 3Par)," according to the statement.

Solution providers say Dell's robust channel engagement model with a single account manager being compensated for all sales going through a partner is translating into higher server market share for the company. In contrast, they said, HP has multiple partner business managers compensated on individual siloed businesses such as enterprise, software or printing and personal systems.

"Dell has one account manager to help me drive my business," said one enterprise solution provider CEO, who has significant Dell and HP business and did not want to be identified. "My Dell partner manager gets comped and covered on everything we do. HP's partner business model is siloed with multiple partner reps that don't get comped on everything. That siloed approach is leading partners to sell other vendor lines whose partner coverage model is more robust. I want a single HP PBM [partner business manager] that gets comped on everything and covers all products so they are vested in all our business and growth."

Mike Gavaghen, vice president of sales and marketing, at SLPowers, a West Palm Beach, Fla.-based VAR and Dell partner said his server and storage sales with Dell are growing faster than his other two server platform partners, HP and IBM, a trend that continued in the first quarter.

The reason, Gavaghen said, is Dell's consistent channel strategy, combined with good marketing and its quality product line. "They've been a really channel-friendly company. They were late to the channel and a lot of people in our space ran in the other direction. We ran toward them," he said.

When occasional channel conflict arises, Dell mediates quickly and usually in favor of the partner, Gavaghen said.

"I can't say [conflict] is non-existent. But I can tell you that they're really good at internally working that stuff out. We don't necessarily get pulled into whatever internal arm wrestling goes on, but our channel people have been really successful at making sure those conflicts are minimized and don't smack us in the head," he said. "When we have a potential issue or sense a potential issue, we get our channel people involved right way, and they've been very successful."

Debi Bush, CEO of CMIT Solutions of Denver, said Dell's channel resources were a big reason for her company's growth with the vendor in the first quarter. CMIT Solutions of Denver recently had a hiccup with one client, but Dell proactively resolved the issue, she said. "They didn't have to, but they stepped up," Bush said. "I hear Michael Dell's a nice guy, but we don't deal with Michael. We deal with the [field resources]. That's what helped out with our clients too."

Dell may have helped its cause by luring one of the channel's most popular executives, Frank Vitagliano, from Juniper Networks, last month. Vitagliano -- who joined Dell before potential bidders Icahn Enterprises and The Blackstone Group withdrew interest in the company -- told CRN in April that uncertainty of the company's future played no part of his decision whether or not to join Dell.

"Certainly, I've been following it. At the end of the day, the things that mattered to me making the decision [was] the company itself. ... That was the No. 1 consideration," Vitagliano told CRN.

SLPowers' Gavaghen also said customers have not been distracted by Dell's plans to go private.

"We've been preceding straight forward down the line with Dell. [The buyout] has been a non-issue for us," Gavaghen said. "I think it's more of a curiosity that people have, like what's happening in the industry. I don't get a sense that our client base has concerns about it or wonders about the implications for their choices in terms of their infrastructure."

Adrian O'Connell, research director at Gartner, echoed the sentiment that customers aren't concerned about Dell going private.

"Client conversations I've had have been more clarification and confirmation as opposed to something more negative, such as a panic move away from the company. I wouldn't say it's an entire non-issue, but it's not particularly problematic," O'Connell said. "The LBO specifically doesn't seem to have had an impact on Dell's various results: PCs, servers, or other parts of business like services or software."

In particular, the go-private proposal has not impacted enterprise-level sales because Dell's stated strategy for the buyout is to invest more in enterprise solutions, O'Connell said. "There is confidence in customers that those investments are reasonably secure because that's the direction they're trying to move in," O'Connell said.

Dell has taken pride in its ability to stay the course with customers and partners since the Feb. 5 announcement. Forrest Norrod, vice president and general manager of Dell's server business, noted that Dell's first-quarter server share increased to 22.2 percent in the first quarter, up from 21.5 percent in the year-ago quarter, according Gartner's preliminary numbers.

"I am extremely confident that we are going to see continued share growth in calendar Q1 with obviously most of that after we announced the [leveraged buyout], " said Norrod. "I think you are going to see that market share growth that Dell has experienced on the server side is coming out of the hides of some of our competitors."

Indeed, HP's worldwide share fell from 29.2 percent to 25.0 percent, year-over-year, while IBM's share fell from 11.4 percent to 9.8 percent and Fujitsu fell to 3.7 percent from 3.2 percent, according to Gartner.

Vendors with small market share, including Cisco Systems, Huawei Technologies and Lenovo, increased their share but hold less than 2.5 percent share each, respectively.

IDC's preliminary data shows Dell grew its first-quarter North American server shipments by 9.9 percent, while HP's dropped 18.9 percent.

Dell's unit share of the North American market climbed to 35.7 percent in the first quarter, up from 31.7 percent during the same quarter a year ago. HP's unit share dropped to 28.2 percent, down from 34.0 percent in the year-ago quarter.

On a worldwide basis, Dell's first-quarter server unit shipments grew 5.7 percent, while HP's declined 15.4 percent compared to the previous year, according to IDC.

IDC measured HP's worldwide server unit share for the quarter at 30.9 percent, down from 35.3 percent a year ago, while Dell's worldwide server unit share climbed to 27.8 percent, up from 25.4 percent a year ago.

For all of 2012, Dell server revenue increased 4.5 percent and the company earned 15.9 percent server market share with sales of $8.17 billion, compared to the year-ago quarter. Dell was the only server vendor in the top five to grow revenue in the fourth quarter. The other four: IBM (-4.3 percent), HP (-7.5 percent), Oracle (-17.4 percent) and Fujitsu (-16.9 percent), all saw server revenue fall.

"I think we're doing just fine. Customers are voting with their wallet," said Marius Haas, president of Dell's Enterprise Solutions group.

PUBLISHED MAY 6, 2013