Dell's Distribution Deals A Warning Shot To HP
Dell's announcement calls right now for only Vostro desktops and notebooks to ship through distributors Tech Data and Ingram Micro. It's but a tiny part of Dell's overall business technology lineup, although a fairly strong one. (Dell's Vostro 220 won our Desktop of the Year award in 2008.) It's a small and targeted start to distribution.
That's how Dell began its channel program in 2006: small and targeted. Chairman and CEO Michael Dell, who has spent his entire adult lifetime trying to avoid inventory and logistics traps like the plague, wanted to make sure that the PC maker didn't choke on backlogs of product when he abandoned the direct model. For the most part Dell has been successful at it. By starting with baby steps into distribution, Dell is trying to minimize the chances of tripping over its own feet.
HP has also been successful over the past two years (it's owned the world's top market share in PCs since then.) But Dell's entry into distribution on the business desktop and notebook side could likely force HP to increase incentives to its own resellers and possibly cut pricing as well. The Vostro has been especially competitively priced and is notable for, among other things, shipping without bloatware.
And consider HP's own warning to investors in its most recent quarterly report with the U.S. Securities and Exchange Commission:
Right now, HP has massive exposure to the distribution channel in North America. Dell is about to test it out.
Greg Davis, Dell's top channel executive, says today's announcement signals what will eventually be a move to bring much more of its product line into distribution - - but he's not saying which part comes next. Servers? Storage? Peripherals? Smart phones? Now that it has these agreements with Tech Data and Ingram Micro, in the span of a few days, Dell could push thousands of rack servers into distribution with no warning to HP. If HP CEO Mark Hurd had a difficult time with forecasting yesterday, it's going to be even tougher for him tomorrow.
To be sure, this isn't risk-free for Dell. The company still faces the wrath of many in the channel who had to compete with the folks from Round Rock for more than two decades. Dell, not HP, could wind up with nasty channel inventory issues. And if distribution were a simple cure-all for PC makers, companies like AST would still be around.
In any event, distribution just got a lot more interesting. No more interesting than for folks in Round Rock and Palo Alto.
