Dell Predictions Make Sense When Enterprise IT Staff Reductions are Factored In

On Sunday, October 14, 2012 we read in the Wall Street Journal that UBS is moving forward on a plan to reduce the cost of IT by 33% by 2015. In an article titled UBS Plans Tech Cost Cuts, Report Says (http://online NULL.wsj NULL.com/article/SB10000872396390444799904578054341701454524 NULL.html?mod=WSJ_Tech_LEFTTopNews&_nocache=1350230508361&user=welcome&mg=id-wsj) Neil Maclucas notes that “Switzerland’s largest bank, as measured by market capitalization, is planning to reduce costs at its information-technology division from around 3.6 billion Swiss francs ($3.8 billion) per year now to 2.4 billion francs by 2015” (quoted from Mr. Maclucas’ article as published on the Wall Street Journal web site). Mr. Maclucas goes on to make his point that further job cuts beyond the 3,500 cuts the bank announced in August 2011.

Coincidentally, we also read an article on the Barron’s web site on Dell. The author of this article, Tiernan Ray notes that a UBS analyst, Steve Milunovich wrote in a recent rating of Drll that “[t]he company’s goal is to grow enterprise computing’s operating income contribution from about 43% today to 60% in F2016.” (quoted from Tiernan Ray’s article Dell: Investors Underestimate Enterprise Prospects, Says UBS (http://blogs NULL.barrons NULL.com/techtraderdaily/2012/10/10/dell-investors-underestimate-enterprise-prospects-says-ubs/), which was published on the Internet on October 10, 2012). We think that Dell’s plans make perfect sense when one considers UBS’ announcement, which will likely be echoed by many publicly traded enterprise financial institutions as 3rd quarter 2012 results continue to be published.

Obviously, Dell is not alone. In fact, HP’s recent announcements about likely reductions in profitability for FY 2012 point to the same realities — enterprise organizations are accelerating their migration to ostensibly less costly cloud computing solutions. They are foregoing hardware purchases, which impacts adversely on the bottom line of major PC suppliers like HP and Dell. The difference, however, as Dell apparently understands, and, perhaps, HP, IBM, etc do NOT, is that enterprise organizations need partners who can adhere to hardware (and even infrastructure) neutrality and impartiality. In fact, the blog post contends that enterprise organizations are also looking for enterprise IT ISVs, OEMs and Partners to support infrastructure on demand: “Steve Felice, Chief Commercial Officer [at DELL], said there is a change in conversations with CIOs in that they increasingly agree with Dell that more agile and modular approach is needed . . .” quoted from the Barron’s blog post, for which a link has been provided above).

All of this bodes well for infrastructure on demand solutions, including players in the Dev/Ops space. Further, the fact that UBS is comfortable announcing an effort to reduce its IT computing costs by 1/3 by 2015 demonstrates the tremendous cost savings implicit to an enterprise organization, like this one, successfully migrating to substantially lower cost computing alternatives. It is really a new dawn.

© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved

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