Seven Questions for Dell Enterprise Head Marius Haas and Software Head John Swainson

Though its share price doesn’t quite indicate it, Dell has been a company on the move lately. CEO Michael Dell has been leading a headlong charge to transform his company, long known primarily for its personal computer business, into the enterprise business. Years ago, Dell’s focus had been on selling as many PCs as possible, but with that business now generally in decline, the mission is now about taking that experience of selling PCs and servers and to build, in part via acquisitions but also organically, a sizable enterprise business that aims to compete with Hewlett-Packard and IBM in selling combinations of enterprise hardware, software and services to big corporations.

The transformation is still getting under way, and last month Dell hired Marius Haas, the former head of Hewlett-Packard’s networking business to run its Enterprise division.

Yesterday, at an event in San Francisco, Dell announced the latest step in its battle to win more of this business. Its Active Systems family of products is Dell’s answer to the converged infrastructure trend that’s hitting the IT industry. In recent weeks we’ve seen IBM talk about its Pure Systems line of products, while Oracle has talked about its Exa- line of Engineered Systems hardware. And Cisco Systems has its Unified Computing and Servers.

The aim of all of them is pretty straightforward: Get all the needed parts of IT infrastructure together in one piece that’s easy to deploy and operate, and also easy to sell in one go.

A few days ago, I caught up with Haas and also with John Swainson, the new-ish head of Dell’s Software division, to talk about their respective parts in the ongoing process of transforming Dell.

AllThingsD: So, with Active Systems it sounds like you’re combining a lot of diverse pieces together into a single product.

Swainson: Customers want all the pieces of hardware. This is a clear trend we’re seeing in the industry. They want not just the compute and networking parts. They want the storage in there, too. They want the ability to manage these things, and they want the ability to scale it up and down. Scalability is often a euphemism for ‘you can make it really big.’ But some of the benefits are being able to make them reasonably small, so that smaller users, who want smaller computing environments, get the same benefits.

That seems to fit with a broader theme that I’m hearing from other companies. Customers want their IT simplified so they don’t have to deal with so many vendors and parts that don’t always work together well.

Swainson: Simplicity is not having to do systems integration. But it’s also having a system that’s automated, that’s intuitive, and human beings can sit down and figure out how to set these things up, and how to provision your workloads. I think you’re going to continue to see us focus on the usability aspects of systems management. My thesis is that customers don’t want to buy hardware or software or servies. What they want to buy is a computing solution to a business problem. To the extent that you can make it easier to use, the better off you’ll be. The second thesis I have is that stuff that’s easier to use gets used more. So you’re targeting a wider range of users, you get to sell into a broader base of customers. A lot of our competitors have retrofitted their bespoke solutions into these packages, and if you scratch, say, one level down, you’re going to find the complexity is still there.

Haas: Some of the key things in our strategy is the modular approach; what John was talking about is key. This whole notion of intelligent orchestration. It delivers unparalleled ease of use, and we’ve got it across the entire product family. We’ve taken an end-to-end soluttions approach which brings together the performance and the agility, so we can optimize both on price and performance, but also on operational efficiency. And we think we’re the only ones who can do it. And it’s all built on the open-innovation philosophy, so there’s no lock-in for customers. It’s easy to scale up, scale out and scale down.

So, Marius, tell me how the enterprise business looks right now. I talked with your boss, Michael Dell, in July, about the plan to reengineer Dell as an enterprise-focused company, and your hiring last month seemed to be a big step in that direction. Understanding that you’re still pretty new on the job, what are you seeing as you look ahead?

Haas: This is purely a look back, but the momentum we’re seeing is great. Last quarter, we outpaced the competitors we’re seeing in every area we compete in. Servers, storage, networking and services, and John now has a much bigger portfolio with the closing of the deal for Quest. Organic growth was 39 percent in networking, and 90 percent if you include the Force 10 acquisition, where others were in single digits. We had server growth of 8 percent. We were the only one that had both positive unit share and revenue growth in servers and share gain. Everyone else was negative. And in storage, if you look at the Dell-owned IP storage, we were up 6 percent and the others were up less — EMC about 3 percent, and minus-7 percent at NetApp. If you look at the core modular peices of the architecture, we’re doing extremely well. Add in support and the options business, it grew 12 percent year over year. When you think the market is growing roughly flat to 1 or 2 percent. Now what we’re doing is saying to the marketplace that we know the trend is toward convergence. We know that the simplicity and ease of use in being able to deploy workloads without having to worry about how the infrastructure works together is very key. We estimate about 20 to 30 percent of all the IT spend will be on converged systems by 2015, so that’s just around the corner. So we’re making sure that we’re marching in that direction, and building off a core set of capabilities that are winning in the market.

How big is the enterprise business by revenue?

Haas: The part we break out is Enterprise Serviecs and Solutions, and it grew 6 percent, to $4.9 billion, last quarter, so it’s about a $20 billion business annually, or about 30 percent of annual revenue. But it represents about 50 percent of gross margin. The part that I’ve got — the Enterprise part, the servers, storage networking and converged infrastructure — Steve Schuckenbrock has services, and John has software. We are embarking on what looks like the new Dell enterprise, and are charged with transforming the company.

Marius, I recently noticed John setting some aggressive goals for himself in the software business. I’m curious if you’ve got goals of your own that you’d like to share?

Swainson: I said two things: My short term goal is $2 billion in revenue by 2016. Today, we’re at about a billion and a half. That will be our run rate at year end. That’s not highly unrealistic. The longer-term goal, and I don’t have a time frame on it, is to reach the $5 billion range. If you calibrate the business versus the other pieces of Dell, to balance things out, it should be about a $4 billion or $5 billion business, something like that.

Marius, let’s put you on the spot. Any goals like John’s?

Haas: I think what I’ll tell you is that we’re extremely bullish on our position in the market. We certainly have goals to grow faster than the market, anywhere from two to five times as fast as the market, depending on the segment. And what we’re doing is positioning ourselves to take advantage of the some of the transitions that are happening, and we have a great value proposition to do so.

You’re feeling bullish, when others — and of course I’m referring to Hewlett-Packard — are having difficulties right now. Is right now the time to maybe try to go and take some share from HP?

Haas: Let me just tell you two data points. You can see it in our results. We are taking share from almost all our competitors that we compete with on the entperprise side. The other is — and this is a survey that just came from Morgan Stanley, it’s a forward-looking spend analysis, asking CIOs if they expect to spend more, the same or less with different IT vendors. And in servers and storage, they said they were willing to spend two to four times as much as they were with our competitors. So that’s a nice leading indicator of the mentality of the CIO about the value proposition that Dell as a whole is providing. We have an enormous loyalty base in our midmarket customer set. In many cases, we are their IT organization. They trust us to bring them the right solutions to help them grow their business and scale their business at the right performance and price points. That is a great platform for us to deliver solutions that scale up but come in at entry points they can absorb quickly.