Jeff Clarke Takes Over Dell's Client PC Business
...I bet he is optimizing for AI at the edge and reviewing Consumer product profitability
Dell just announced that Vice Chairman Jeff Clarke is taking over leadership of the Client Solutions Group. Three things are likely happening:
1) Dell wants to capitalize on the current PC “refresh cycle” (Windows 10 end-of-life coming this fall).
2) Dell’s CONSUMER PC business is struggling, with -19% revenue growth year-on-year (“YOY”) last quarter.
3)The Commercial PC business is fine. In fact, it’s better than fine. There is a huge opportunity here to gain share as AI PCs take hold.
Jeff’s been at Dell since the mid 80s and has seen many PC refresh cycles. Jeff and I worked together in the early 90s when we managed engineering and product line marketing, respectively, for Optiplex, which was Dell’s flagship desktop computer (65% of worldwide revenues at the time).
Jeff’s a smart problem-solver who moves quickly. Within the company, he’s renowned for his front-line engineering expertise (especially around optimizing power, weight, heat, and battery life), and his focus on quality, reliable products. (I still remember the first time he had me tour the test lab, then affectionately known as “Shake and Bake.” Those were some intense tests). He’s also developed some scalable engineering strategies over the years, which Dell uses on repeat.
I bet he’s working on the following questions:
• Which AI capabilities are most important to enterprise customers, and how can we make adopting those capabilities intuitive for users? The neural processing unit (“NPU”) chip enables natural language processing, AI code assistance, AI agents on the PC, small language models, possibly “inference at the edge,” and many other capabilities. It also manages workloads more efficiently.
That’s a lot. The key will be speaking directly with customers to understand what they most value, and putting that into the PC in an intuitive way so that customers USE it. Once usage accelerates, everyone wants it, and it pays for the incremental cost of building in the capability. If you add a $10 widget to a PC and only 10% of users adopt it, you’ve just added a $10 cost that is not valuable to 90% of your customers (effectively a $9 weighted cost increase with no value). On the other hand, if 80% adopt it quickly, you can charge $20 for that widget, and now you are making money. Dell has a massive advantage here in that it has a direct sales and technical service force in addition to channel partners. All that direct feedback goes straight back into R&D and product development. I bet Jeff’s talking to enterprise customers and some Dell enterprise salespeople to hear it himself.
•How should Dell price and execute during this AI transition to ensure rapid share gain? This is a Dell playbook as old as time and goes back to at least the Pentium transition of 1994-1995, when Optiplex gained 6 points of share in 6 quarters and catapulted past Compaq to the #1 corporate desktop market share position. Dell has core advantages, such as lower inventory and direct feedback, that help it capitalize handsomely on these transitions.
• Are there consumer product lines where the juice is no longer worth the squeeze? The entire “problem” in PCs is in the Consumer Group, as shown in the image above. That business is shrinking 19% YOY. Commercial PCs are better than fine, growing 9% YOY. Does it make economic and strategic sense to exit certain consumer product lines or segments of the consumer business? Or are there ways to reduce costs at the low end of the middle market by reusing designs and components from other product lines?
The issue is in Consumer PCs. Dell’s enterprise business is becoming a juggernaut. Here’s the one stat that made me increase my holdings of Dell this spring: Orders for AI-optimized servers were up nearly 5X YOY in Q1, shipments were flat, and Dell is sitting on $14 billion in AI server backlog.
Big tech transitions favour Dell. And so far, AI looks to be the biggest of our lifetime. Jeff Clarke’s leadership of the Client Solutions Group comes at the best possible time.