April 8, 2004 11:38 AM PDT

Dell has $60 billion in sight

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Dell is ahead of schedule to reach its goal of $60 billion in annual revenue, CEO Michael Dell said Thursday.

In its last two fiscal years, the Round Rock, Texas-based PC maker has exceeded the 14 percent yearly revenue growth it needs to reach that goal, Dell said at the company's annual analyst meeting in Austin. Thus, the company expects to exceed $60 billion relatively quickly.

Back in 2002, the company announced that it wished to hit the $60 billion mark within the next few years. It was a fairly ambitious goal for Dell, which at the time had revenue of about half that--$31 billion. Dell garnered $37 billion in fiscal 2003 and $41 billion in fiscal 2004, growth rates of 17 percent and 20 percent, respectively.

"I'm pleased to note that we're tracking ahead of our plan," CEO Dell said Thursday.

An averaging of predictions from 25 analysts polled by Thompson First Call has Dell hitting $48.5 billion during its fiscal year 2005, while the average forecast of 20 analysts has the company reaching $55.6 billion in its fiscal 2006. So far, only three analysts have weighed in with estimates for Dell's fiscal 2007. On average, they expect Dell to report revenue of $63.1 billion that year. Dell's fiscal year runs about a month behind the calendar year, so the first quarter of the company's fiscal 2005 began in February and ends this month.

In an effort to meet its goals, Dell has woven together a broad set of computer-related products and services, as well as entered new product categories and expanded its efforts in international markets. The company's low-cost manufacturing has allowed it to offer aggressive prices for its PCs and servers, a move the company says has helped it gain share in the PC market while still turning a profit. Dell increased its share of the worldwide PC market by four points in two years, rising to nearly 17 percent, company executives said. Dell was the top PC maker in 2003, according to IDC.

Meanwhile, the company has launched several new storage systems and service programs over the past couple of years, while also introducing Dell-branded products into entirely new markets, such as those for printers and consumer electronics. The company has also increased its sales outside the United States, in regions including Europe, Japan and China. The combination of all those factors has brought Dell higher unit sales of PCs, servers and storage systems, along with numerous new services contracts. It's also enabled the company to make a splash in printers. Higher quarterly revenue and profit has resulted, the executives said.

As if to underscore that point, Dell on Wednesday increased its revenue estimate for its first fiscal quarter by $200 million. It did so because unit sales are growing at a higher-than-expected rate and could increase by as much as 25 percent year over year, thanks in part to higher international sales. Dell had predicted an increase of 20 percent or more.

Talking about a big market
Thus far, Dell's business strategy has centered on building computers or other products with standard components and using its manufacturing and supply chain efficiency to offer lower prices than competitors, thus allowing it to gain market share while still pulling a profit.

The approach has served Dell well to date, allowing it to increase unit shipments by about 20 percent per year during the last three years, company executives said. The executives indicated that Dell plans to continue to use its direct sales business model to continue to grow its PC, server and storage businesses, while also working to establish itself in new areas, such as the markets for services, printers, televisions and other consumer-electronics devices.

Dell executives still see businesses customers and the servers, storage systems and services it can provide to them as its top priority. Indeed, the way Michael Dell himself sees it, the company has an opportunity to conquer a larger portion of the wider information technology market, which includes PCs, servers, storage systems, networking gear, software and peripherals, and information technology services--a market he estimates will be worth $800 billion in 2006.

Dell appears to have big plans for the printer business. It will expand its product line over time with new products, such as color laser and photo printers, and it will also attempt to lower the overall cost of printing, company executives said at the analyst meeting. Dell sold its first 2 million printers in less than a year, giving the company a base of users that will purchase ink and other supplies over time. Michael Dell added that he expects the company to garner $1 billion in printer revenue this year.

Although Dell and other company executives, including President Kevin Rollins and CFO Jim Schneider, left no question that they believe Dell will meet and surpass the $60 billion mark, they left open the question of when exactly that might happen.

"We're clearly tracking ahead of $60 billion. I'm sure you can imagine numbers greater than $60 billion--Jim (Schneider) has mentioned $80 billion" in revenue, Dell said. "But we're not here to tell you what the revenues will be in FY07, FY08 and FY09."

 

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