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 user 2005-05-30 at 10:33:00 am Views: 81
  • #9540

    Dell downplays dependence on computer sales

    A casual observer of the IT industry who stumbled upon Dell’s
    analyst meeting this month might have emerged 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.

    Dell’s message was clearly designed to reassure the financial
    community that even if the PC market stagnates, it would continue to exceed
    expectations for quarterly growth, analysts said.

    PC growth to slow

    In recent years, the company has delighted the financial
    community by improving revenue and net income by about 20 per cent each quarter,
    compared to the previous year’s quarter. With PC shipment growth expected to
    slow to 8 or 9 per cent over the next two years, and revenue growth in the
    category expected to be even weaker, Wall Street analysts are concerned Dell is
    about to hit the inevitable slowdown in growth that befalls mature companies.

    To dispel that notion, Dell executives pointed to several
    different markets that will allow the company to increase its yearly revenue to
    $US80 billion by 2008 or 2009. The company recorded $US49.2 billion in yearly
    revenue during its fiscal year 2005, which ended January 28, and expects to post
    about $US60 billion in revenue during the current fiscal year.

    For example, Dell cited the printing and imaging market,
    which the company thinks will be worth $US105 billion in 2005. But it did not
    discuss how closely shipments of printers were tied to shipments of PCs,
    director of industry analysis with NPD Techworld, Stephen Baker, said.

    Dell often gave away free printers with purchases of
    Dimension desktop systems, or discounts laser printers for business PC
    customers, he said.

    This made sense, because the revenue stream generated by
    replacement ink or toner cartridges for the printer quickly offset the cost of
    giving away the printer, Baker said.

    But the PC business was what drove 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, vice-president of client computing for IDC, Roger
    Kay, said.

    Market share concerns

    Over the last few years, Dell had made significant gains in
    PC market share at HP’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

    If the company didn’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 would report PC market share estimates next

    The financial community tended to overreact to bad news, he
    said. Should Dell fail to post those market share gains, the company could point
    to recent messages 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 was at a turning point in its history, Kay said. Dell
    executives and public relations personnel were trying to manage the company’s
    transition from a US PC vendor to a global enterprise IT vendor with the breadth
    of rivals such as HP and IBM.

    Dell believes it is in the best financial shape of its life,
    and few analysts think the company would set a target of $US80 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