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Dell reorganizes to face fast-changing market

With shrinking margins in the traditional PC business, Dell makes far-reaching changes to add more "netness" to its boxes.

Dell is undergoing a quiet, yet far-reaching, reorganization in an effort to make sure it's ready for a coming computer age that will bear little resemblance to the one it is thriving in now.

New initiatives include a restructuring of Dell's desktop computer group with special teams dedicated to examine "holistic" development of platforms and peripherals, the introduction of new "e-services" over the next few months, more focus on partnerships with telecommunications firms and Internet service providers, and newfangled desktops. The effort is being propelled by diminishing profits in the traditional areas of personal computing--which is affecting all PC makers.

But profits aside, Dell also wants to maintain its coveted market position and stay ahead of market trends as the Internet becomes the central force driving PC purchases and usage. The Austin, Texas-based company now dominates the small business market--one of the most critical emerging segments--and is No. 2 in the U.S. PC market, as it continues to close the gap with market leader Compaq.

Dell's thinking is that the PC's value is increasingly linked to the Internet, said Carl Everett, a senior vice president in charge of the personal systems group. Ironically, Everett, a former Intel executive, is building this strategy around the premise that speed of the Internet connection--not Intel processors--has become the most critical performance yardstick for the personal computer.

Others agreed. "The bottlenecks are not the processor [for small business and consumers]," agreed Roger Kay, an analyst at International Data Corporation (IDC). "You need to build an [high-speed Internet] infrastructure. Nobody's doing this fast enough."

But Kay also said that Dell has to work hard to maintain its lead in making the Internet integral to all its strategies as the company comes off a few years of heady growth. Gateway and IBM rate high in momentum now, said Kay. In fact, IDC rates Gateway ahead of Dell in a new metric that measures "momentum." Dell also lags other PC makers in the consumer PC market with only a 3.5 percent share, Kay said.

But Dell will carry its push beyond the PC to the telecommunications firms and Internet service providers that supply the Internet's data pipes, according to both Everett and chief executive Michael Dell. Partnerships with regional Bell operating companies (RBOCs) and Internet service providers are in the works, according to both. Michael Dell already said this week in New York that it will start up its own Dell-branded ISP in the U.S. Both of these areas provide the opportunity for new revenue streams in the face of the drop in the average selling price of PCs.

Despite the new emphasis outside the PC box, Dell is not ignoring the computer. Several of the new initiatives emanate from the hardware that Dell sells. Everett said Dell is putting more "netness" in its PCs and giving its computers a new "ID"--or new look.

"Technology exists to do powerful systems in new [designs] thus making form and function just as important as the raw performance was a while ago," he said.

One of the most flashy design forays will be all-in-one PCs that combine a large liquid crystal display with the core electronics resulting in a lightweight "luggable" computer, according to Everett. "Maybe not something that people can take with them on trips but something they can take home for the weekend," he said. "We believe there's a lot more we can do with this design beyond what Gateway is doing," he said.

Quiet reorganization
All of this is happening against a backdrop of a quiet reorganization and reconceptualization of products and markets. As Dell puts more "netness" into its redesigned boxes, it is basing strategies on a three-pronged approach of e-products, e-services, and e-support, according to Everett. This will manifest itself in new e-services and e-support announcements over the next several months, according to John Thompson, a Dell spokesperson.

These roll-outs will emphasize troubleshooting and support via the Web and may come as part of a package with a new product. "Think in terms of what we've done with broadband...using the direct model to integrate both broadband technology and broadband services into the box that gets delivered to your door. We might do more of those services or partner to make sure you're getting them through your Dell product," said Thompson. Broadband describes high-speed Internet access technologies such as cable modems, DSL, and satellite service.

In an example of one of the most tangible changes, Dell has combined its Dimension desktop and Inspiron notebook lines. The aim is to roll out Internet technologies and services to the burgeoning small-business market--where Dell leads--in a consistent manner. For example, if a high-speed DSL modem and an accompanying service from a RBOC is introduced on a consumer desktop, similar technologies and services will appear on Inspiron notebooks.

Everett said growth in broadband technology will come from the consumer and small-business markets. Employees of large corporations, he said, are already attached to high-speed corporate networks. Most consumers and small businesses, however, still use sluggish dial-up connections.

New groups created
One of the most significant changes at Dell is the creation of groups for developing platforms and peripheral devices. The platform group now oversees design and hardware development for all desktop and notebook platforms. "It takes a more holistic look at the overall technologies available rather than just making incremental improvements in established product lines," said one Dell executive.

The new peripherals group was created to develop relationships and processes with the "right players" from storage to flat panels to new multimedia technologies, according to Thompson. The recent multibillion-dollar deal with IBM is one example. This deal calls for Dell to get LCD screens and storage products, among other components, from IBM and to work with IBM in developing new products.

The two new groups complement the existing software-development group which today is working with companies like Microsoft to make sure it is ahead in implementing Windows 2000 products.

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