April 7, 2005 9:33 AM PDT

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.

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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,

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4 comments

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Hey Dell...
I don't think of you as just another PC maker. I think of you as a FUD spreading junk selling company. But I don't think of you as only a PC company. I know that makes you happy.
Posted by System Tyrant (1453 comments )
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Low Manufacturing Costs
It is easy to achieve such low costs when they make and design so little. At least HP make more than 50% of some of their products, such as printers and scanners. What does Dell make more that 10% of? Do they even make their own cases.
Posted by Andrew J Glina (1673 comments )
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Dell is a company in decline.
It's clear that the "accountants" are firmly in charge at Dell. They've been cutting corners and dissing clients in order to meet "unrealistic" revenue targets--losing whatever goodwill and/or reputation they had in the process. Now they're planning to dump the PC business before it dumps them. In the end, all their efforts to pump up their stock price will add up to little more than "selling the furniture to buy new drapes".
Posted by culture_of_one (68 comments )
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