Dell focuses on life, revenue beyond the PC

Dell not only wants to move beyond its image as just a PC maker. The company needs to do it.

Central to that shift are plans to continue expanding into markets adjacent to the PC, such as printers, servers, storage and even televisions, company executives said on Thursday at Dell's annual financial analyst meeting in Austin, Texas.

The company is making such moves to reach its new target of $80 billion in annual revenue over the next three to four years. Last year, it took in $49 billion. The expansion would also help make Dell less subject to the ups and downs of the PC market and more of a broad-based technology company.

Top goals for Dell will be to boost its share of the server market, its sales of storage systems and its position in printers. By expanding printer sales, for example, it can also expand revenue annuities that come from printing supplies.

Over time, Dell's PC unit sales will become less of an indication of how the company is performing, CEO Kevin Rollins said at the meeting.

"While we're still interested in PC growth, it's not going to be the predictor it once was," Rollins said.

At the same time, Dell sees opportunities in the uncertainties created by rival Hewlett-Packard's recent change in leadership and IBM's decision to sell its PC business to Lenovo Group.

At Thursday's meeting, executives reaffirmed Dell's first fiscal-quarter revenue forecast of $13.4 billion.

The company is already expected to hit its previous goal of $60 billion in annual revenue during calendar 2006--a year earlier than planned--and several Wall Street analysts say Dell will reach its $80 billion target over a three-year time frame. That would translate into a compound annual growth rate of around 18 percent.

Dell executives did not offer much in the way of specifics about new markets that might help it hit those goals. Rollins has previously mentioned digital cameras, and there has been talk of cell phones. But Rollins touched on neither on Thursday.

And for all the talk about no longer being a PC company, Rollins did acknowledge that PCs are still a vital part of Dell's business. The company ranked as the world's largest PC maker during the fourth quarter.

Analysts also agree that PCs are still an important market for Dell.

"For the foreseeable future...PCs will remain the dominant revenue driver in Dell's business," said Brooks Gray, an analyst with Technology Business Research.

Gray predicts that Dell will hit the $80 billion mark during calendar year 2009 and that even at that time about 59 percent of its revenue will come from PCs.

The direct approach
Dell says its low manufacturing costs and direct-sales model give it an advantage over competitors such as HP by allowing it to sell PCs, printers, televisions and other products at lower prices. Dell's model mainly involves selling products and services to customers using online or telephone sales and shipping them straight to offices or residences.

Main rivals HP and IBM--whose PCs will soon be in the hands of Lenovo--use hybrid models that combine direct and indirect sales, adding a network of so-called solution providers that sell PCs, servers, services and related software to businesses and take a cut. One the consumer side, HP works with retailers that sell to individuals and small businesses.

Some critics have said Dell should have more of a retail presence or work more closely with business resellers. But the company has so far limited its efforts to placing a small number of kiosks in shopping malls to display its consumer products. Dell, which killed its white-box PC program earlier this year, continues to works with resellers that can offer its brand-name products. But it does so without fanfare. It also maintains a reseller program for emerging markets in Eastern Europe, the Middle East and Africa, but it places most of its emphasis on direct sales.

Elements of the way Dell aims to reach the $80 billion mark include boosting sales of servers by expanding the types of machines it offers. It also plans to increase its printing and laptop business by pursuing greater market share and lower prices, respectively, all as part of a strategy it calls "define, grow and extend."

Dell starts by identifying a so-called profit pool--Dell printers represent one such pool. It then enters those markets and experiments with new products,

pricing and delivery models, before making a concerted effort to expand its market share. Dell's more mature markets are where it aims to extend, by creating new types of products, peripherals and services as well as creating partnerships with other companies.

"Printers is one of those that's in the define phase and we'll move shortly into the growth phase," Rollins said. "It's pretty clear to us now that this is going to be a winner for us. Customers love the online ordering and the fact that they get 99 percent of (supplies like ink) delivered the next day."

Meanwhile, notebooks are already in the growth phase where "we want to drive share gain," Rollins said. "That involves developing a global product plan, simplifying the product and lowering the price. It's our intent, now, to continue in the growth phase with notebooks."

Servers are in the extend phase. Dell has launched new types of machines, including blades. It has also forged numerous alliances with companies including SAP and Oracle, allowing it to pair their software and services with its servers. Dell is also touting its work on grids and high-performance computing clusters, which basically string together large numbers of servers.

Services, Rollins said, cross the lines of its businesses. But the company remains interested in delivering offerings that are closely tied to its hardware, giving it an advantage in marketing Dell boxes and profits from both.

Dell is eyeing flat-panel televisions as an expansive business, with sales that would go to both consumers and corporations, he said.

More details on earnings
To underscore its strengths outside of desktop PCs, Dell will begin to offer more detailed earnings reports, CFO Jim Schneider said in a presentation. Dell will break out its separate product categories, including desktops, notebooks, servers, storage, software and peripherals and so-called enhanced services.

"I think what you're going to find is as you step back and break down this 16 percent growth in the (first) quarter--if that's the number we end up with--you'll see a much higher growth rate in servers, storage and (software and peripherals)," he said. "You'll have less growth actually from the old core hardware, if you will."

One reason Dell may be downplaying PCs is the anticipation of declining market growth. During the first quarter, for example, IDC predicts that unit share growth will be 10 percent versus the 16 percent average over the last six quarters.

"Nothing that we're very nervous about," Rollins said. "While the industry might be slower than people had thought, even a bit slower than we had thought, it's still moving at a good pace."

Reuters contributed to this report.