Dell still sees value in taking the direct route

Tom Sweet, Dell Technologies
Tom Sweet, Dell Technologies

Dell is turning scepticism of the channel into a competitive advantage, writes Bily MacInnes

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31 May 2019 | 0

It was just a throwaway remark by Dell Technologies CFO Thomas Sweet in a conference call with analysts for the vendor’s Q1 2020 earnings at the end of May, but it spoke volumes.

As he discussed the company’s performance in the first quarter and what it expected in the second three months of its fiscal 2020, touching on the effects of the ongoing trade discussions between the US and China and the IT spending environment, Sweet talked about the need to adjust its global supply chain “to minimise the impact to our customers”.

Commenting on the expectation that component costs would continue to decline over the next two quarters at least, he added: “Our direct model and associated lower inventory position provides flexibility relative to our competitors. We will continue to be disciplined on pricing as we moved through the year, but we will also ensure that we adjust as appropriate given market and competitive dynamics.”

Further on in the call, vice chairman for products and operations, Jeffrey Clarke, discussed the beneficial effects of the change in mix of the Dell client business towards the commercial and high-end consumer spaces, adding: “We saw our direct business grow at a premium to the market place, which as you know, carries the attach of S&P services and financing which are margin accretive to us.”

To be fair to both Sweet and Clarke, the references to the success of the company’s direct model and the growth of its direct business were just one-liners in a fairly lengthy conference call. But they were interesting nonetheless, particularly when you set them against the extremely positive noises Dell has been making about the channel and the success of its partner business over the past few years.

The comments come only three weeks or so after the company told attendees at its Global Partner Summit (GPS) that more than 50% of its revenues were coming from the channel and that partner sales easily outgrew the rest of the business.

Sweet’s comments in particular served to remind observers of the potential benefits of a direct model, benefits which may have become increasingly overlooked and ignored in the marketing around the vendor’s conversion to the channel.

The fact remains that despite the impressive sounding figures and statistics attached to the surge in Dell’s partner activities, the company still has a large direct business and a direct sales model. Judging by the remarks from Sweet and Clarke, it still views them as advantageous for Dell compared to its rivals.

There’s no reason to doubt its enthusiasm for the channel model and the sales it brings, but that is not to the exclusion of the vendor’s longstanding direct model. In other words, Dell is trying to have its cake and eat it. So far, it seems to be working.

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