If you can't beat them, join them

If you can't beat them, join them

Not so long ago, some industry experts were getting out their black suits in anticipation of a funeral. The soon-to-be dearly departed, we were told, was the IT channel. The likely cause of death would be the Internet, which meant vendors were able to service all those small and medium businesses that had previously been too difficult to deal with directly.

The medics were particularly concerned by a virulent strain of Dellus Directia, a superbug that was threatening to wipe out everything else in the industry. This relentless germ had grown at a rate never seen before and it was only a matter of time until the channel, and any vendor that relied on it, was pushing up daisies.

Hindsight is a wonderful thing and we now know these fears were unfounded. While the industry is still susceptible to Dell infections, service levels have emerged as a successful antidote. People buy from people and (despite its undoubted convenience) the Internet was never going to completely wipe out the channel. It is fine for some transactions but you are also going to need some personal interaction, especially in complicated markets like technology.

The shuddering halt over at Dell has been almost as incredible as the speed with which it rose to be the world's largest PC company. HP has since wrestled that tag back, although it is still nip and tuck at the top, and alarm bells are ringing at Red Rock, Texas.

Preliminary results announced last week (accounting investigations were still being conducted by the US Securities and Exchange Commission and the US Attorney for the Southern District of New York at the time of press) saw Dell post Q4 revenues of $US14.4 billion compared to $US15.2 billion for the same period a year earlier. Profits had slumped from $US1 billion to $US673 million (which included $US184 million of withheld employee bonuses).

Executives were so unimpressed by its most recent financials that they refused to hold their customary press and analyst briefing.

The worst news for Dell is that there's nothing wrong with the market. Its biggest PC competitor, HP, has gone from strength to strength since Mark Hurd took the reins from Carly Fiorina. Back in November, HP reported Q4 earnings of $US1.7 billion, more than four-times as much as the corresponding period from a year earlier. To keep things in perspective, a company is hardly in trouble when recording profits in the hundreds of millions. Nevertheless, Dell has had a horrible year and its honeymoon with Wall Street is well and truly over.

Following the departure of CEO, Kevin Rollins, these are critical times for a company that once looked like taking over the IT world. Founder, Michael Dell, is now back at the helm with a major restructure said to be underway. Coining these changes as the creation of Dell 2.0, he has hinted this will see the company adapt its manufacturing and distribution models to reach more customers in emerging markets.

Who knows, maybe we will even see Dell embrace a channel strategy. If you can't beat them, join them.

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