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T-mobile appears to be taking the big bang approach to upgrading their networks (Geographically) as opposed to limited markets (i.e NYC, CA, Las Vegas, FL, etc). However, the upgades themselves are incremental as opposed to transformational (i.e LTE). It will be interesting to see which approach is more effective in capturing the next generation of users/applications and gain market share. This is very similar to what Walmart did with its expansion – focused on under served markets.

I just switched from Sprint CDMA Blackberry to T-Mobile GSM HTC Google Froyo G2 Android (after briefly considering AT&T iPhone4 GSM) due to due T-mobile’s HSPA+. No other carrier has 8mbps+ in my market at this time. I got the G2 as opposed to the MyTouch primarily due to the physical keyboard and I don’t anticipate the need to use video calling (similar to iPhone 4′s facetime) on the myTouch cell phone/smart device.

The acronyms not withstanding, it is all about implementation and systems management. The system is only as good as its bottleneck. Theoretical capability in a lab does not equate to reality. All providers are using whatever they have and can port on it most cost effectively to get the best ROI. With the G2 on HSPA+ it is like upgrading from the horse drawn buggy to an automobile. A much better mobile experience than before due to the phone/device, OS, carrier, HSPA+ and the google ecosystem.

The unlimited data plan from T-mobile was the icing on the cake for me. I don’t anticipate the need for unlimited voice minutes since I can just log into my Google Voice on the device and use the VoIP to make calls (and receive).

So is the death of the cell phone as we know it near as discussed in my blog about the changing mobile landscape?

Update 1 (Nov 6, 2010)
It appears that using Google Voice does use the minutes from the voice plan for now. So what makes sense is to use Google Voice for international calls only (it can be set up as such on the HTC G2). Reason being that the standard US calling plan does not include international calling. Using Google Voice for international calling is much more cost effective than using cellular international plan or Skype. Since Google Voice and possible Wi-Fi calling use the minutes from the voice plan, it would appear that one might opt for the unlimited voice plan as well.

Update 2 (November 10, 2010)
Here are the bandwidth test results based on 34 samples in the HSDPA mode and 13 samples in UTMS mode on my T-Mobile HTC Google Android Froyo G2 HSPA+ (the phone/device switches between HSDPA and UTMS):

http://www.flickr.com/photos/shakercherukuri/5164493726/

The HSDPA version of UTMS is supposed to reduced the latency and can be seen in the data. The data was captured between November 6 and Novermber 10, 2010 on the south side of Indianapolis and the servers used were in Indiana or Ohio.

The data in the columns is independent of the rows. For example, the max values for the download, upload and latency are just that – max values for each from the data sample.

It seems to me that the death of the regular cell phone is just around the corner. With FCC just voting to allow unregulated white space access in the TV broadcast spectrum, Google, Cisco, Microsoft, Apple, Nokia, Intel, Dell, HP, Oracle, IBM, Amazon could all blanket the country with their own so called Super Wi-Fi (as an integral part of the Cloud computing strategy) and give away a handheld device at a subsidized cost to access that Wi-Fi for a nominal monthly charge. Consumers could choose to allow targeted location based ads in exchange for a subsidized device and lower access charges. Businessses could opt for a ad free envirnonment and just pay for the device and access charges. This would be a game changer.

Google’s stake in Clearwire and the recent departure of Sprint executives from Clearwire board would seem to indicate that Google might be planning a super Wi-Fi using the clearwire network (setting it all up from scratch might take too long and be very capital intensive). Google already has the massive distributed data centers that would be an enabler for this super Wi-Fi (in addition to the white spaces in TV spectrum).

Others mentioned above and some of the existing Telcos could certainly do the same (using GSM and/or CDMA in combination with white spaces in TV spectrum). They do have the capability and more importantly, the capital.

The Good Product and the stroke of Genius Capital Raise at $16+…..

The Bad overall go to market strategy. Apple has iTunes eco-system, Google has the Google eco-system, Nokia has the scale and trying to take the eco-system to the next level by creating the content for aggregation/distribution (not just the channel like iTunes), Motorola, well, it is a glorified contract manufacturer like Flextronics.

(Comcast’s acquisition of NBC is a move to own the content for the channel. Following AOL’s footsteps of Time Warner “acquisition” in 2000. Maybe Apple will follow Comcast and “buy” Disney!!)

What was Palm’s differentiator? Multitasking? WebOs? So why do we need a brand new cell phone?

The Ugly relationship management with the Carriers. An exclusive arrangement with Sprint was botched with the early overreaching to Verizon and AT&T. iPhone is still not available at any other Carrier. Sprint spent a lot early on promoting Palm Pre due to the exclusive arrangement and then they (Palm) come out with Palm pre Plus for Verizon. The marketing material I have been getting from Sprint lately does not mention Palm Pre at all (I am a premium Sprint Customer having been with sprint for over 10 years).

Apple took the time to build on its relationship with AT&T (to preserve the channel) and introduced the enhanced iPhone also only on AT&T. Palm showed absolute lack of tact and jeopardized its relationship with Sprint by overreaching.

What’s next? Take under, over? What the heck is “take under” anyway? Licensing WebOs? Game Over? 300 million debt and 300 million preferred stock = zero value for common stock in a year when cash = zero (just over 500 million in cash in 2010 Q1)? Or will Web Os be the Windows/DoS of mobile and Android be the IBM PS2? Or will it be the other way round?

What about Nokia’s Symbian? Will Apple/iTunes go the way of AOL due to the closed system?

Dell is a great example of good Working Capital Management. They usually have a negative WC. For details on this click here (2MB PDF file) ->

http://process-improvement-solutions.com/Working_Capital_Gap.pdf

Dell seems to be transforming itself by acquiring the skill sets needed to provide complete solutions to customers instead of just a system thereby repositioning itself during a trough in the economy. Some of the skill sets are being acquired by hiring talent from competitors and some via acquisitions like the Perot Systems deal with the objective being to transform itself from being a vendor of just products to provider of services..

Dell had already reorganized into corporate (Small/Medium and Large), Consumer and Public Sector divisions which is a technique borrowed from GE that enables the corporation to better service its market segments by allowing all internal processes to be reorganized in terms of value provided to the customer. With today’s completion of tender offer for Perot Systems, Dell created a new business unit for Global Services similar to IBM’s Global Services division.

With $12 Billion dollars in cash on the balance sheet ($9 billion net of debt), Dell stock is trading at just under 5 times it’s trailing EBITDA (net of cash). Earlier this year when it was under $8 dollars, Dell was trading at just little above the cash on its balance sheet. Interestingly enough, this was the exact same situation Apple was in 2001/2002 when it bottomed out at just around $8 (at just under $8 billion market cap) with about that much in cash at that time.

Going forward, this repositioning strategy should enable Dell to expand its Operating Margin for itself and provide better value to its customers – consumers, government and business. In fact Dell is now the Amazon.com for corporations looking to one stop shop for their Information Technology needs including perhaps business process consulting and re-engineering eventually.

Update 1 (Nov 6, 2009)
So Dell’s approach to repositioning is different from Apple’s in 2002 (consumer products was Apple’s focus). It is a combination of Apple, IBM and Amazon strategy in the sense that Dell seems to be more interested in premium products for the consumers, services for corporations and public sector and one stop solutions provider for commercial and public sector. In essence, Dell is thinking a lot bigger than trying to do a Steve Job’s act.

Intel Rebates Issue
Rebates from suppliers to their biggest and best customers is a fairly common practice in all industries. For example, engine manufacturers routinely provide rebates to their truck customers. Most industrial’s do this. The reason this specific case is being singled out is because of Intel’s dominance in the processor space. Intel made a strategic decision to focus on Micro Processors over DRAMs under Andy Grove and since then has been able to constantly innovate and keep all competition at bay. Innovation and then fabrication in this space is very capital intensive. It is very hard for competitors like AMD to catch up once Intel has had such a huge lead. That by very definition is the true nature of free market system – the winners usually take all with distant 2nd and some times 3rd players (Duopoly) when the leader has a significant competitive advantage – it is happening in the financial sector right now after all the turmoil. Apple was able to establish huge dominant position with IPOD by locking up the supply chain for couple of years (in addition to creating the iTunes eco-system). This should be a non issue for Dell. As they said, they are free to choose their suppliers and in fact seemed to have managed to introduce AMD chips as well.

Update 2 (November 14, 2009)

Intel Rebates issues as I said above, is a non issue. Intel appears to have made a truce with AMD and the antitrust lawsuit should eventually loose its teeth in Europe and US. For Dell, over those five years it’s revenue was over $250 Billion. The $5 Billion seems to have been accounted for via either COGS reduction (challenging endeavor to match it with revenue since the rebates might be asynchronous) or put in a other bucket in the income statement and balance sheet (I looked at the statements for the years in question). The other bucket is quite small (few million).

Dell’s Smart (Phone) China Move

This is a smart (phone) move by Dell – Open source as opposed to proprietary software and entry via geographic location where the opportunity is vast and competitors are limited (as of now). The US dominance in smart phone segment by Apple and RIM is unlikely to continue.

In international markets like China, the smart usage is much different than in the US or Europe. Most consumers in countries like China, Brazil and India (BRIC countries) don’t even have landlines or access to internet at home or work (the problem in India though is that there are very strong local telecom competitors and regulation). Russia is still the wild west and very risky. Most of the consumers there depend on these phones for all their communication and online needs. They need real utility features and not millions of non value added apps that serve no real purpose except for bragging rights in commercials.

An excellent example is Vodafone’s Japanese foray. Vodafone entered Japan with same strategy that proved to be successful in Europe and failed miserably. The reason being that the Japanese consumers’ smart phone usage is quite different from the Europeans.

With focus and entry via China, Dell’s probability of success is greater in this space compared to foray via the US market by taking on RIM and Apple head on. Making it open source using Google’s Android makes lot of sense since in essence this allows the local market to develop the product and its applications. Dell can then learn from that and adopt the successful aspects for other markets.

The likelihood of a corporation being able to replicate iPod/iPhone/iTunes or Blackberry like success is very small – showing the consumers the hidden need and getting them to adopt it (with help from an excellent supply chain/content strategy by Apple and a great e-mail application by RIM). Nokia seems to be trying to replicate Apple by focusing on creating a content eco-system. Dell’s strategy (based on information available so far) appears to be to allow the marketplace and consumers evolve the eco-system – especially in a market the needs of which are unknown and the infrastructure limited.

Update 3 (November 21, 2009)

I am disappointed with Dell’s inability to manage the short term while executing the long term turnaround strategy. Having said that, by the nature of its current business model, Dell might be limited in what it can do to manage the short term results. I am still holding on to my Dell. Down side is limited. It is again trading it less than 5 times trailing EBITDA net of cash ($14 Billion Cash, $3Billion Debt, $11Billion net cash on Balance Sheet, $28Billion Market Cap, market value after cash is $17Billion, Trailing EBITDA is $3.73, 17/3.73 = 4.55). Even if the market were to correct, I don’t believe Dell will go down much from here.

The turnaround strategy is being executed, hence those restructuring charges. The gross margin was inline with historical average for this decade. This miss on the revenue was quite small (12.9B vs $13.2: 2.2%) and was higher than some analysts estimates. The real metric to watch is Operating Margin – that is what will create value for the shareholders as this turnaround strategy starts bearing fruit next year.

I also belive now that Dell is a possible take over candidate because of its valuation. The margin extraction from that $60 Billion in revenue would be easy with vertical integration play.

February 22, 2010 Update

The Perot acquisition is starting to payoff at the top line (30% Sequential growth in services). However, the cost of services revenue went up by 38%. There is room for improvement in services cost of revenue.

On the Operating Margin front, there was a $202 million charge related to restructuring and acquisition in addition to amortization charge of $86 million (about half of which looks like was because of Perot). So approximately $250 million hit to operating margin was due to restructuring and Perot Acquisition which translates to about 12cents/share.

Again, Gross Margin was within the normal range for the past decade. As stated above, the real metric to watch is Operating Margin which can be managed in spite of Gross Margin Contraction as demonstrated by numerous well run companies operating in highly completive environments.

Going forward, as the top line improves and acquisition/restructuring charges disappear, the Operating Margins should improve exponentially.

September 27, 2011

HPs missteps should also benefit Dell. PC market share, mobile, Enterprise, Services etc.

In today’s WSJ there is an article on Indiana’s problems with its Social Services. The claims process was outsourced to IBM and its subcontractor, Affiliated Computer Services. This is an excellent example of how automating a process without first understanding all the underlying process issues does not really fix anything. In fact it makes the problem worse as discussed in my Amazon.com review of the book published by the founder of Infosys.

Most IT projects fail because the process issues are not addressed first. It is a common fallacy to assume that simply installing technology systems and automating a process will resolve all issues. The problem in this case does not appear to be outsourcing the claims process, but rather, lack of effort upfront designing the right process to fix the issues. The constituents using the system are the customers here and really the entire process needs to be revamped from outside in – customers’ point of view.

Shaker Cherukuri
Managing Principal
Process Improvement Solutions, Inc.
Greenwood, IN
317-258-3552

Unlike in Toyota’s case as discussed in my blog on 2/24, going back to basics is probably not the answer for Dell. Why? Read on:

Dell was the best performing stock in the US in the 90s (90,000%). It peaked in late 1999 and Dan Niles (a young analyst at that time) called the top in Dell correctly (at $60). That made Mr. Niles very successful in the years since (he has his own firm now).

What made Dell successful in the 90s is a laser like focus on making low cost PCs for the corporate market and shipping those PCs directly to the customers that demanded just that – no mall browsing, no hand holding. Dell strayed briefly from this direct model in the 90s and saw its bottom line take an immediate hit. They quickly shelved the retail channel since as Mr. Dell put it, every decision needed to be weighed against the needs of the retail channel causing confusion (variation kills).

Well, the competitors have caught up to Dell on the cost side. On the demand side, the corporate market has contracted and HP has taken market share since Compaq acquisition. Ms. Fiorina’s strategy to acquire Compaq did pay off eventually after Mr. Hurd extracted the value from the acquisition on the cost side.

Another aspect now is that the growth is coming from the consumer market and that is a beast. It is not just about lowest cost and direct shipping anymore. It about the packaging, colors, lots of features, halo effect from other products, eco-systems (iTunes) etc. Dell has moved into retail channel again and diversified into other consumer products as well (TVs etc).

Going back to basics (few models shipped directly) is probably not the answer. This time it has to come from the demand side. Will need innovation.

Can Mr. Dell do a Steve Jobs act?
Shaker Cherukuri
Principal
Process Improvement Solutions Inc.
3209 W. Smith Valley Road, Suite 224
Greenwood, IN 46142
317-258-3552