Dell's Revenue Slide Increases Importance of VARs

On August 27, Dell (NasdaqGS: DELL) reported a decrease in both revenue and profit.  Profit fell 23 percent and sales fell 22 percent in the May-July period year over year.  Like HP (NYSE:HPQ) and Intel, Dell is seeing a revival in consumer spending, but corporations are still holding back.  Dell's sales to corporations fell 32 percent from last year to $3.3 billion. Dell is hurt more than HP by weak corporate IT spending, since about 80 percent of Dell's business comes from sales to businesses, government agencies and other institutions.  Even though consumer PC unit sales are up 17%, the popularity of lower priced units (like netbooks) and aggressive price cutting have created a 9% drop in segment revenue to $2.9B.

 Dell faces multiple challenges as it fights to maintain its market position.  While it currently is second behind HP in market share, it is working to evolve its culture from a direct sales model to a channel-friendly model.  After 25 years of selling directly to customers and with only 15% of revenue currently coming through the channel, it has to work hard to build trust and nurture channel relationships.

 Jim Defoe, Dell channel executive for the US and Canada, is featured in an informative podcast which describes the steps Dell is taking towards become a channel-focused culture.  Deal registration, rules of engagement, escalation processes and, significantly, a policy of dual compensation are all in place to support this effort.

Michael Dell anticipates improved corporate demand in 2010 which is especially encouraging for Dell.   With HP and Acer encroaching on Dell's market, selling into corporations through solid channel relationships becomes even more important. Look for more investment in partner incentives from Dell in the future.  Partners may have more leverage in working with Dell now than ever before.  Using tools, like deal registration and certification will be key to a successful relationship and mutual success.   

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