SURE,WE’VE GOT PC’S,BUT TRY THE PRINTERS!
SURE,WE’VE GOT PC’S,BUT TRY THE PRINTERS!
2005-05-27 at 12:44:00 pm #9769
Dell:Sure,we’ve got PC’s, but try the printers
A casual observer of the IT industry who stumbled upon Dell’s
analyst meeting in Austin, Texas, last week while looking for a blues bar on
Sixth Street might have emerged from the ballroom of The Four Seasons Hotel
slightly confused about the nature of the company.
The worldwide leader in PC market share spent very little
time talking to financial analysts about its performance in the core business
that accounted for about two-thirds of its revenue during its last fiscal year.
In fact, after a question-and-answer session with Chief
Executive Officer Kevin Rollins, company spokesman T.R. Reid informed
journalists that reporters had an “obligation” to focus on the other parts of
Dell’s business that were outlined during the two-day event, such as printing
and services. While that exhortation prompted some curious looks, Dell’s message
was clearly designed to reassure the financial community that even if the PC
market stagnates, Dell will continue to exceed expectations for quarterly
growth, analysts said Friday.
Over the past few years, the company has delighted the
financial community by improving revenue and net income by about 20 percent each
quarter, compared to the previous year’s quarter. With PC shipment growth
expected to slow to 8 or 9 percent over the next two years, and revenue growth
in the category expected to be even weaker, Wall Street analysts are concerned
that Dell is about to hit the inevitable slowdown in growth that befalls mature
To dispel that notion, Dell executives pointed to several
different markets that will allow the company to increase its yearly revenue to
US$80 billion by 2008 or 2009. The company recorded $49.2 billion in yearly
revenue during its fiscal year 2005, which ended Jan. 28, and expects to post
around $60 billion in revenue during the current fiscal year.
For example, Dell cited the printing and imaging market,
which the company thinks will be worth $105 billion in 2005. But Dell did not
discuss how closely shipments of printers are tied to shipments of PCs, said
Stephen Baker, director of industry analysis with NPD Techworld. Dell often
gives away free printers with purchases of Dimension desktop systems, or
discounts laser printers for business customers of Dell’s PCs, he said.
This makes sense, because the revenue stream generated by
replacement ink or toner cartridges for the printer quickly offsets the cost of
giving away the printer, Baker said. But the PC business is what drives that
revenue stream, not the printer itself, he said.
With slower PC growth expected this year, Dell might have
been trying to soften the upcoming blow of relatively poor market share results
during the current quarter, said Roger Kay, vice president of client computing
Over the last few years, Dell has made significant gains in
PC market share at Hewlett-Packard’s expense during the year’s first quarter,
while HP chipped away at that advantage over the remainder of the year, Kay
said. Although Dell reaffirmed its guidance for the first quarter, Rollins said
the PC business had been a little weaker than the company had expected.
If the company doesn’t post as strong a gain during the first
quarter, it might not be able to increase PC market share over HP this year and
therefore it would only be able to grow as fast as the entire market, Kay said.
IDC and Gartner will report their PC market share estimates in two weeks.
The financial community tends to overreact to bad news, Kay
said. Should Dell fail to post those market share gains, the company could point
to its messages during the past week and remind analysts that the fluctuations
of the PC market will have less of an effect on Dell’s overall business going
forward, he said.
Dell is at a turning point in its history, Kay said. Dell
executives and public relations personnel are trying to manage the company’s
transition from a U.S. PC vendor to a global enterprise IT vendor with the
breadth of its rivals, like HP and IBM, he said.
“They’ve been saying this message for a long time, but
they’ve cranked it up,” Kay said.
Dell believes it is in the best financial shape of its life,
and few analysts think the company would set a target for $80 billion in yearly
revenue if it wasn’t very confident in its plan for reaching that goal. But
financial analysts plan to wait and see if Dell can pull off this transition
without significant contributions from its PC business.
“We think Dell can sustain about 16 percent revenue growth
the next few years. But dependence on PCs and slowing penetration in key
European countries must be monitored,” wrote Merrill Lynch & Co. analyst
Steven Milunovich in a research note distributed Friday