AI and infrastructure: How do Dell's plans to remain a regional market leader stack up?

Dell, one of the largest server and computer companies in the world, sees some avenues for growth and opportunities in Latin America with AI, the cloud and a refresh of machines by corporate clients.

Despite the loss of global market share in the PC segment and losing out on some big server deals, the company remains the market leader and intends to increase its production capacity in the region.

In this interview, Luis Gonçalves, head of the company in Latin America, shares the company's vision for the coming quarters.

BNamericas: How is Dell working on the opportunities around generative AI? Last year, the company mentioned some pilots underway in the region. How has this initiative progressed?

Gonçalves: I would say it has progressed significantly. Not to the point where we have use cases in production. But we have made significant progress on two fronts. One is more and more customers seeking knowledge on the subject to carry out their pilots.

But on the other hand, we also have some very solid initiatives that accelerate the learning curve and adoption regarding all issues related to the good implementation of an AI strategy for corporate use.

[Initiatives include] those related to security, positioning and location of data, data processing and guardrails to ensure that data is protected and meets the expectations of companies.

BNamericas: How does Dell, which is primarily a hardware company, work on genAI objectively with its customers?

Gonçalves: First, through infrastructure. Dell is currently positioned as, if not the absolute leader, one of the market leaders due to its ability to provide the entire AI infrastructure in a consolidated manner, which includes all elements, be that computing, networking, storage, support services, and so on.

But Dell also has a very important differentiation, which is being able to implement in its infrastructure some of the development and usage platforms of the major AI or parallel processing providers, which are essentially GPUs, such as Nvidia's.

When we're able to put all of this in a pre-assembled, pre-tested and consolidated stack to accelerate adoption, we make life easier for the customer and introduce solutions that are available from many of these software providers.

BNamericas: But in general, the market is still in testing mode, although advanced and experimenting with generative AI, is that it? Or do have you already closed contracts and sales?

Gonçalves: Yes, we have sales. When we talk about cases in production, it's a bigger step than what we had back then, when everything was more about discovery.

BNamericas: Can you give some examples? And which markets have stood out?

Gonçalves: Brazil and Mexico, of course, but we have multinational and multi-Latin clients that end up leveraging cases in more than one market.

Depending on the industry in which you operate, the payback is very promising, so even in countries that may be considered smaller or less prone to [AI], there are large companies that see the benefit of implementing cross-country projects.

We have a mining sector that's super strong, we have the financial sector, which is also very strong, telecoms.

BNamericas: Speaking of equipment, how is production going in Hortolândia, Brazil? What is the current production capacity, compared to the total capacity?

Gonçalves: The production side is going very well. In fact, it's interesting that you ask, because just yesterday I visited the factory and every time I go there I get the impression that everything has changed, that it's a different factory.

We have local production capacity to serve the local market, and we have the capacity to expand. We even have plans to 'nationalize' some of the products in our lines, so that we can have them here at local prices, with the benefits of local manufacturing.

Today, most of what we sell is assembled locally, but there's still some that's imported. We want to ‘nationalize’ more and more.

BNamericas: So the idea is to expand the lines with new products that should be added to the local portfolio?

Gonçalves: Exactly.

BNamericas: What are the prospects for the server segment in Latin America? You had to deal with major setbacks recently, such as a contract with Petrobras that went to Lenovo.

Gonçalves: We are doing very well. The latest projections from market research companies, including those forecast for this quarter, are in line with our prediction models and show that we will continue to lead.

Without a doubt, the gap is narrowing, but we will continue to lead. Despite this deal you mentioned, we have a large installed base of customers who continue to renew, who continue to consume and, even more so now, are concerned about all the renewals that come with pressure on the infrastructure.

In the PC line, there will be a mandatory event, which is Windows 11, and with that you will also start to strain your entire infrastructure that supports this PC base. 

[Editors’ note: Microsoft will end support for PCs running Windows 10, leading companies to replace and update their machines].

In terms of servers, despite some setbacks, we ended Q2 with a 45% market share in Brazil and 39% in Latin America. We remain firmly in the regional market leadership position.

It's not an impact in just one quarter that ends up changing the curve significantly. The competitor also needs to, in addition to this deal, win others in order to have a substantial difference over Dell within a given period. And, at least so far, we don't see that happening.

We regret it because it's a deal that we would've liked to have won. But deals of this magnitude will always arise.

BNamericas: How are Dell's revenues spread by segment in Latin America?

Gonçalves: It's similar to what is happening in the rest of the world. If you look at Dell's numbers, in Q2 of this year there was very strong demand for AI servers that grew by almost 80%.

And so the overall revenue mix between the server and datacenter machine lines and the PC line has tilted a bit. That balance, when you look at datacenter products and PCs, is typically 60-40%, 55-45%, respectively.

Recently, the server side of the mix has been more pronounced. Not only because of demand, but because of the absolute value, since they're higher value-added products.

BNamericas: And what are the expectations for PCs? Market figures show a slight drop in your global market share in this segment, while some competitors have been growing.

Gonçalves: There are very positive expectations for Q4. Starting next year, as I said, there will be a PC refresh, a mandatory event after the end of Windows 10's life cycle.

This difference you mentioned, between the performance of our competitors and ours, which is slightly lower, is because there's still pent-up consumption by companies. And our PC business is mostly commercial and corporate. What has been setting us apart from our competitors is the consumer market.

But the replacement of corporate PCs, together with our investment in AI-integrated equipment, is a great opportunity. We believe that next year will see a recovery in the commercial market, in the corporate business.

Because if I'm going to do the refresh next year and I have to stay with the same machine for two, three, four years, if I don't opt for one that's AI-enabled, I could end up with an underutilized asset.

Customers are, I would say, waiting to understand which PC offerings bring the best benefits of AI enabled to make the decision whether to do the refresh with AI or not, because this next refresh will now determine the level of use and productivity for the next four years.

And we're talking about 128mn machines worldwide. That's a lot of machines that aren't ready, not eligible for Windows 11.

BNamericas: And how are you positioning yourselves regarding servers?

Gonçalves: Our business model creates a tremendous advantage in AI servers because customers want to receive everything integrated, mounted in a rack.

In fact, this is the demand that exists most in the world today, for the server already structured in the rack. The servers are huge, heavy, difficult and complicated to assemble. Our assembly and supply chain in the region are major assets.

I have a deal with a government client in Brazil who asked us to deliver equipment to 2,000 different addresses. He doesn't want to receive everything at a central location and then do the shipping himself. 

It's a challenge. But we have this capacity developed, this muscle, which by the way, is why we won this deal. This is an example.

BNamericas: You operate under the nearshoring concept in Mexico, with the factory there serving the North American market. Could a possible return of Donald Trump to the presidency impact this business in any way?

Gonçalves: We've been able to navigate all political shifts. Obviously, not always unscathed, that would be an illusion, but I think that Dell today has this resilience to both economic and political cycles in a very solid way.

Regardless of the choices, of the options, we will be here.