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Analysts predict calm waters at Dell meeting

Steady as she goes. That's the course industry pundits expect Dell's executives to plot this week, when they deliver a progress update at the PC maker's annual analyst meeting.

Steady as she goes. That's the course industry pundits expect Dell's executives to plot this week when they deliver a progress update at the PC maker's annual analyst meeting.

Dell, which has navigated the tricky waters of economic downturn over the last two years, will update its business strategy on Wednesday in Austin, Texas. But many analysts said ahead of the meeting that they don't expect too much in the way of surprises from the company, which over the last few quarters has chugged along, steadily increasing PC shipments, revenue and profits.

Thus far, Dell's strategy has revolved around building computers with standard components and using its manufacturing and supply chain efficiency to offer lower prices than competitors while still turning a profit. The approach has served Dell well to date, and the company has also been able to apply it to other areas, such as services, printers and consumer electronics devices. Thus, it's unlikely to change things much, if at all, analysts said.

Analysts have come to expect steady gains from the Round Rock, Texas-based company. During its fourth quarter of 2003, Dell increased shipments of servers and notebook PCs by 40 percent each. Its revenue jumped by 18 percent year over year, reaching $11.5 billion.

Dell's first-quarter projections have the company increasing overall product shipments by more than 20 percent, year over year, resulting in a 28-cent-per-share profit. Analysts expect Dell to hit those numbers, according to an average of 28 analysts' estimates, collected by Thompson First Call.

Andy Neff, an analyst at Bear Stearns, wrote in a research report Monday that Dell typically meets its projections by emphasizing basics such as increasing the amount of money customers spend on buying products. Although it may be boring, staying true to form has produced good results for Dell.

"Despite multiple growth engines, we don't think Dell's agenda is to deliver earnings per share upsides, which creates a cycle of expectations and potential disappointment" among investors, Neff said.

"$60 billion, to me, is just like one of the markers along the way. What happens when we get to $60 billion? Well, we go to $70 billion."
--Jim Schneider, Dell chief financial officer
Still, Dell aims to please. The company has set a goal of increasing its annual revenue to $60 billion. At the time Dell made that plan, in April 2002, it was roughly a $30 billion-a-year company. It was an ambitious goal, considering that it followed the worst year the PC market had seen in decades.

Since then, however, Dell has gained numerous new customers in both the corporate and consumer marketplaces. Its PC unit shipments jumped 25 percent year over year to 25.8 million units in 2003, making it the world's largest PC maker, according to IDC.

Dell CFO Jim Schneider has already hinted that he believes that, given time, his company may exceed the $60 billion goal.

"$60 billion, to me, is just like one of the markers along the way," Schneider said at a Morgan Stanley conference on March 1. "What happens when you get to $60 billion? Well, we go to $70" billion.

Dell still faces a number of challenges, though. It must battle giants such as Hewlett-Packard and IBM to gain more business from corporations. HP is also a tough competitor in consumer PCs.

An important part of Dell's strategy to gain revenue and increase profits relies on its ability to both gain new corporate customers and increase its business within existing relationships. This helps it sell increasing numbers of servers and storage systems and also provide services for installing and maintaining the hardware. Dell's service business has generally been about 10 percent of its revenue.

HP and IBM can offer similar server and storage products and can bring to bear vast services organizations of their own, however.

Meanwhile, Dell's customer service has experienced some growing pains. In surveys conducted by Technology Business Research and the Consumers Union of U.S. at the end of last year, some businesses and consumers said they were less satisfied with Dell's service. Dell executives have said they think most customers are satisfied and that the company has addressed the other customers' concerns.

Dell is also transitioning to a new CEO. Its President, Kevin Rollins, will take the helm in July. Dell's current CEO, Michael Dell, will continue as Dell's chairman. The change in leadership is expected to go smoothly, however. Rollins has run much of Dell's day-to-day operations for some time now, giving Michael Dell time to focus on company strategies.

Many analysts believe that Dell will continue its growth.

"We expect the tone of the meeting to be upbeat, and we believe that Dell will demonstrate increasing confidence in improving corporate PC demand," Bill Shope, an analyst at J.P. Morgan Securities, wrote in a report issued Monday. "Dell continues to refine its direct model to gain market share in its core PC market. This, coupled with our view that desktop and corporate PC demand should accelerate, position Dell to grow at up to two times the market later this year. We believe that Dell will continue to target 30 (percent to) 40 percent market share in the PCs from its midteen levels today."