Dell focusing on services to drive profit growth

Dell plans to increase profitability by expanding its services business and ramping up its efforts in the financial and retail markets in particular.

Currently, the services arm contributes around 15 per cent of Dell's revenue, according to Tanvir Khan, VP of business process outsourcing at Dell. It's one of the fastest growing areas of the firm and although it is unlikely to outstrip the hardware division in terms of revenue generation, the margins are said to be better.

"The hardware business is a big revenue driver, due to enterprises buying PCs for large refreshes as well as sales of servers and storage. Gross margins tend to be high in hardware, but then there are huge costs for R&D and manufacturing. By the time you get to operating profit it comes down quite a bit," he told IT Pro at Dell World 2014.

"In services, the biggest component of cost is labour so the margins are higher - up to 25 per cent. So services might become the biggest contributor to margins in the future."

The VP said Dell has gained a lot of traction in the insurance sector in the last year and banking is an area where the firm can improve, having entered it two years ago.

"In other industries such as utilities and retail we're just not present. The plan is to enter these markets as a niche player and become competitive."

Opportunity for expansion

Dell is already the biggest provider of IT in the healthcare industry. The vendor has also been drafted in to run a variety of processes from managing Twitter analytics for the American Red Cross to running a banking call centre in the UK.

At present only 20 per cent of Dell customers buy value added services because many customers simply want enterprise PCs. As a result, there's plenty of opportunity to expand, according to Khan.

"Very few businesses are just buying a box. Nobody comes and says give me 5TB of storage. Customers want a backup solution' which has software, services and hardware rolled into one," he continued.

Dell believes its integrated approach can help customers achieve their goals at a lower cost. Khan used the banking sector as an example.

"If a bank tells us it wants to increase its online presence by 25 per cent and reduce foot traffic in branches, we can provide the software, back-end services and datacentres, and consult with them to help meet this target," he added.