My analysis of the Dell Q2 earnings call re: Windows 8

Dell seem to be deadly serious about providing a plethora of devices to consumers this fall.

Very interesting what they had to say in their Q2 2013 earnings call.

Well for the bad news right out of the gate, they just announced a 22 percent drop in consumer sales. They addressed that in the call:

In the quarter, we saw the channel drawing down inventory in anticipation of the Windows 8 launch. We also continued to see discretionary spending directed to alternative mobile devices like tablets and smartphones.

In light of these results and market dynamics, I think it’s important to reiterate our client strategy. We’re focused on continuing to drive our cost out initiatives to maximize operating income versus unit share [ph]. We’ll continue to deliver a strong portfolio of systems targeting the mid and high-value spaces. We’ve refreshed our Latitude and XPS portfolios with products that are thinner and more powerful. We’re building strong capabilities in security and systems management and have an industry-leading position in thin client solutions. And we’re positioned to be a leader in addressing the emerging corporate BYOD trend with our current XPS 13, 14 and 15 notebooks and our upcoming tablets and converged devices. In addition, you’ll see new Windows 8 Ultrabooks, all-in-one tablets and converged devices in the fourth quarter and headed into next year.

Interesting that they are explicitly stating 2 things here.

  1. No budget Dell devices, they are targeting mid to high range devices.
  2. Aggressive push to lead the BYOD revolution.

When asked whether Windows 8 would push the PC market into growth and if so when, this was their CFO’s response:

Look, I think we are bullish about the products that we have coming aligned with the Windows 8 launch. I think as you know, our mix of business tends to be more on the commercial side, so there might be a little bit more delay in terms of that having an impact for us as it sort of works its way through the Consumer side of the business. But we would expect, as you head into next year, seeing a bit of a benefit clearly as that works its way through the system and we see those products in the marketplace.

Translation: A lot of our devices go to companies so look to next year to see if this thing works out (wiggle room).

Michael Dell also chipped in later:

Yes, I mean, I think there’s been some understanding of the number of units that are likely — although it’s a relatively small percentage, maybe in the 1% to 2% range of total PC units through the middle of next year, certainly with our business being more focused on commercial, centered around the Windows 7 transition, which is still very much under way, I’m feeling very good about the portfolio we have with OptiPlex, Latitude, Precision. The XPS product line is in good shape, and we’re ready for Windows 8.

We’ll be looking at the XPS line to see what units they are positioning for Windows 8. What’s really interesting is how much Windows 7 is still doing fantastic numbers right now. He’s basically saying they are ready for Windows 8 but their business is primarily focused on Windows 7 – no question.

Very interesting here again as their CFO responds to more questioning about Windows 8.

Yes, look, I think as you think about the next 2 quarters, there clearly is the — what we would see in a typical transition from an operating system. And as our business is more heavily weighted towards the Commercial side of the business, we still continue to feel good about refresh opportunity. Well, I think we’ve seen data that would suggest only about 50% of that Windows 7 transition is complete, and that’ll continue and will continue as we sort of play out over the next several quarters here before anybody really thinks about Windows 8 on the Commercial side. Those areas in the corporate or commercial customer base that are looking at tablets, clearly there is a wait-and-see sort of approach how you think about that playing out in the commercial enterprise. And as Windows 8 as an alternative with a tablet product that can work in the Enterprise as well with security, it’s something that we hear a lot our customers talking about and really waiting for. So we would expect that — that could be a catalyst. And there — we’ll be part of that, and our products are really focused on that part of the market.

More interesting nuggets here.

First, Dell are estimating that we are only 50% through the migration to Windows 7. A worst case scenario for Microsoft could mean 2 to 4 years before companies start to consider migration to Windows 8 – a catastrophe.

Second, good to hear that companies are looking forward to Windows 8 tablets. I hear that from a lot of corporate types as well.

Basically it comes down to this – The entire PC industry is waiting for Windows 8 because it’s the only growth opportunity for the PC/Device market over the next couple of years.

The BIG NEWS that did catch my eye is the fact that companies are so busy with Windows 7 that even if Windows 8 was a failure, it would be possible to recover.

Microsoft technically would have a little breathing room to recover, step back and fix before the majority of their corporate customers had the itch to migrate.

Interesting.

What are your thoughts on Dell and their future?

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  • Marcus

    I think that was pretty good analysis. I’m sure Microsoft will find a way to mess it up though…

  • Marc Phillips

    I think that was pretty spot on.

    I expect Microsoft to miss the target and have to adjust with Windows 9.

    🙂