Dell Inc CEO Michael Dell speaks to China Daily. He said the company will go beyond selling only hardware in China. [Photo / Provided to China Daily]

PC maker says networking, servers, data centers will drive future profits

CHENGDU - The US computer maker Dell Inc said on Thursday that it plans to shift its focus from consumer business to corporate businesses in China.

That's as the profit margin for personal computers shrinks due to fiercer competition and a market slowdown.

In an exclusive interview with China Daily, Michael Dell, chief executive officer of the world's third-largest PC maker by market share, said that servers, data centers and networking will become the fastest-growing businesses for Dell China in the coming years.

"Not too long ago in China when you talked to chief information officers, they would say that they needed access to computers for their people. But they have moved past that now," said the 46-year-old company founder.

He said the company's Chinese customers are becoming more interested in business intelligence, supply-chain management, customer relationship management and productivity, which will require Dell to go beyond just selling hardware.

China is Dell's second-largest market after the United States, and the company supplies roughly 60 percent of the servers used by Internet companies in the country. Last year, the company spent $25 billion on deals with Chinese suppliers and partners and its sales grew 36 percent, according to Dell.

Dell said on Thursday that the next challenge for China is to ensure that productivity continues to approach the level of the world's most advanced nations. The way to do that is "not with muscles, but with brains and tools", according to Dell.

"You can't make someone really productive with a piece of paper and a pencil. You have to give them modern tools," said Dell. He said the fastest way for a company to become productive is to employ information technology.

Dell's revenue from its consumer business reached $3.3 billion in the fourth quarter of last year, a decline of 8 percent year-on-year. But its revenue from large enterprises, government contracts and small and medium-sized enterprises (SMEs), all registered substantial growth.

Dell said on Thursday that about two-thirds of the company's profit comes from its non-PC business, including services, servers, storage, solutions and networking. In China, Dell's revenue from its corporate business has already overtaken the PC business, he added.

China's PC market grew by only 4 percent in the fourth quarter of last year, compared with 38.8 percent growth in the first three months of 2010, according to figures from the research firm IDC. The slowdown was due mainly to the government's recent efforts to cool the economy.

Related readings:  Dell to launch new operation site in Chengdu  Dell to open 1,000 stores in China  Dell aims for bigger sales in China market  Dell to double investment in China to $250b by 2020

Simon Ye, an analyst at the research firm Gartner, estimates that China's PC market will achieve growth of about 10 percent this year, as uncertainties in the domestic economy reduces demand from consumers and corporate users.

"The profit margin of personal computers is often about 3 to 5 percent, much lower than the 10 percent seen in other areas such as servers, storage and networking," he said. Ye said that with companies such as Hewlett-Packard Co and Dell moving their focus to corporate businesses, Asian companies such as Acer Inc and Lenovo Group may soon catch up and dominate the global PC market.

Media reported on March 10 that the world's biggest PC maker Hewlett-Packard was considering selling its PC business to Samsung Electronics Co. However, HP later denied the report and emphasized that the PC is at the core of its business.

Dell on Thursday also said that focusing on corporate business does not mean that the company is giving up the personal computer market, saying that PC business will become the "foundation" on which its other businesses can be built.

But he added that with the mass application of "cloud computing" (effectively using the internet as its own hard drive), much of the profit impetus will shift from the desktop to servers, storage, networking, software and services.

Dell has a large manufacturing base in Xiamen, Fujian province, and last September it launched a new factory and service center in Chengdu, Sichuan province, to supply the booming demand in the West China region.

Dell on Thursday also said the company plans to hire "tens of thousands" of people in China in the coming years.