Editor’s note: Krista Macomber is Research Analyst at Technology Business Research. She analyzes Dell’s latest earnings report. Dell (Nasdaq: DELL) said Tuesday its fourth-quarter earnings fell 18 percent. 

HAMPTON, N.H. – Dell successfully leveraged investment in datacenter and solutions center capabilities globally as well as enterprise R&D investment to shift the product mix to higher-value, higher-margin engagements.

This approach supported triple-digit growth to 2011 operating and gross margins, year-to-year.

However, 4Q11 margins fell steeply, led by the Consumer and Public Sector businesses, as Dell faced hard drive shortages from Thailand, continued weak U.S. Public Sector spend, and wrote off $25 million in previous-generation mobile phone inventory.

Dell will leverage restructuring, including tight integration of acquisitions and continued supply chain adjustments, to protect profitability as challenges experienced during 4Q11 continue to play out across 2012.

Software Emphasis

Dell rounds out its stack, strengthening its ability to execute on enterprise solutions, with the formation of a new software business

Dell has its sights set on winning the integrated hardware, software and services race, driving bottom-line expansion while positioning to remain relevant as customers demand comprehensive, “as a service” delivery models.

Dell has committed to establishing a software business under the direction of former CA Technologies CEO and 26-year IBM Software veteran John Swainson, in an attempt to bolster its enterprise solutions credibility. Over the long term, increased enterprise wallet share will result in heightened competition with the likes of Oracle and IBM – which is no accident considering Swainson’s extensive experience at IBM. However, Dell remains a newcomer to running a software business and is still gaining enterprise hardware and services traction.

As a result, TBR anticipates initial Dell software traction amongst midmarket customers; Dell can tap its more expansive install base and tout a strengthened high-ROI solutions proposition that will resonate with customers more strapped to reduce operating expenditures, before progressing into higher-value accounts.

Vendor Agnostic

Dell will integrate software throughout its core hardware product lines to deliver increased manageability and visibility into its servers and storage, helping paint a picture of reduced IT administrative and down-time costs for customers. To drive proliferation of its new software portfolio, TBR expects Dell to remain vendor-agnostic in supporting existing hardware implementations.

In 2012, Dell will prioritize tuck-in acquisitions around middleware and expanding the systems management and cloud integration capabilities it acquired with KACE, Scalent and Boomi. Dell will ramp joint development, go-to-market and reselling initiatives with partners such as Salesforce.com and VMware, rounding out its software portfolio with capabilities such as virtualization and PaaS to better customer navigation of new IT models, such as cloud. However, the long-term viability of this strategy is questionable as Dell aims to become a more formidable opponent in the cloud. Acquisitions can help Dell strengthen its stack and mitigate its heavy reliance on PaaS partners.

Enterprise Focus

Dell’s restructuring initiatives also span existing businesses, as the company positions to go all-in on the enterprise in 2012

In addition to establishing a software division, Dell is leveraging internal restructuring to existing businesses to strengthen the enterprise solutions story. Dell is positioning to increase collaboration across its commercial, public and consumer businesses and drive a more customer-centric approach to solutions by uniting its customer businesses under its new President and Chief Commercial Officer Steve Felice, former head of the Consumer and SMB businesses, effective Feb. 4, 2012. Paul Bell, current president of Public and Large Enterprise, will retire effective March 30, 2012.

While SMB and enterprise customers have unique business requirements, uniting the two businesses under one umbrella positions Dell to translate best practices from where it is historically strong, the midmarket, to the enterprise space – from marketing to research and development functions. Additionally, it will help Dell deliver more effective and consistent messaging in the migration of midmarket install base to higher-value services and solutions as customers’ organizations grow.

(c) TBR

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