Dell Shrinks Computers and Operations

Just a day after Dell launched it’s own line of mini Inspirons, and after CEO Michael Dell said carriers would likely subsidize such netbooks, creating smaller price tags, the Wall Street Journal speculates that Dell will sell its manufacturing plants, shrinking its operations. This would be good for Dell because it would give it a chance to ditch an aspect of its business with diminishing returns and go after a growth area, like cloud computing.

Dell already outsources some of its manufacturing, but if it gets out of the business entirely it would join its rivals who no longer build their own machines, and give up a key to its past. Dell came on the scene in 1984 with a manufacturing model that drove change across the industry, from requiring just-in-time manufacturing, which cut the costs of rapidly depreciating components, to analyzing how workers moved in the plants in order to shave seconds and pennies off the job of building a PC.

But like any good entrepreneur, Michael Dell can see the changes in the industry and appears ready to abandon what made his company big now that it’s not working anymore. Here is a another test for him as he gears up to make his company over — kind of like a $65 billion startup.

That’s a tall order, but IBM has done it by selling off its iconic PC business and relying on services. Hewlett-Packard focused on a mix of hardware and services for corporate customers while drawing in consumers on the PC side. And Apple shook things up with the iPod and now the iPhone. Dell had tried all of these strategies without huge success, but I think with cloud computing it has a chance.

The hardware and operations that comprise a computing cloud will be a low-margin business for those offering it. If Dell can take the lessons of squeezing the costs from a low-margin business like building computers and translate that into helping build, deliver and operate clouds most efficiently, it could win. By tying its range of consumer and corporate devices back into such clouds, it could become a powerful business generator for cloud providers.

When it comes to the utility industry (which is what many cloud providers like to compare their business to), GE sells billions in equipment and services to providers. Dell has made some acquisitions that get it started down that road offering both services and equipment to clouds, but it also has a company culture of exactitude and discipline that can’t be bought. I think if Dell can dump its manufacturing plants, it will head for the clouds.

image of the Inspiron Mini 9 courtesy of Dell