Dell CEO Sees Share Gains But No Industry Slowdown
By Eric Auchard 6/23/99
<<NEW YORK (Reuters) - Dell Computer Corp. (Nasdaq:DELL - news), the fast-growing No. 2 personal computer maker, is gaining market share at the expense of competitors, its chief executive said Tuesday, as he cast scorn on concerns that growth in the PC industry is slowing.
At a media briefing in New York, Michael Dell, founder, chairman and CEO, said the Round Rock, Texas company earned 55 percent of the PC industry's total profit in the first quarter and that figure may increase in the second quarter.
''Based on the pre-announcements of some of our competitors, we think that figure may increase in the second quarter,'' he said, referring to a warning by rival Compaq Computer Corp. (NYSE:CPQ - news) that it would report a loss in its second quarter.
''We are in full account-acquisition mode,'' Dell said of corporate sales accounts Dell has taken from Compaq amid the rival's recent business turmoil and restructuring efforts. ''It's sort of a perfect competitive environment,'' he added.
Over the next four to five years, Dell hinted his company's market share, measured in terms of PC unit shipments, could grow to around 20 percent. In recent quarters, Dell's market share has hovered near 10 percent, below No. 1 ranked Compaq, with around 14 percent, according to Dataquest market research.
Dell made the comments to a group of reporters on the first day of PCExpo, the annual computer trade show that is one of the industry's largest gatherings.
Commenting on the sell-off in technology stocks in recent months, including Dell's own shares, he said it reflected a typical spring pessimism about PC shipment growth.
He forecast that computer shipments would continue to grow by about 14 percent this year, and do so for the foreseeable future. Dell will grow far faster than that, he added.
''The slowdown may be a share shift....In fact, that's exactly what the data says,'' Dell said, pointing to industry statistics that show Dell growing several times faster than the industry as a whole in recent years.
At midday, Dell stock was 13 cents higher at $39.06, up from a low of $31 in early June, but down from $45 in mid-May before its latest earnings report, when for the second quarter in a row it showed signs of decelerating revenue growth.
Dell cautioned that it might take several quarters for the full effect of any new business won from Compaq to show up in his company's financial results, as the new customers make the transition to Dell's direct ordering process.
In his comments, Dell said the company was seeking to boost its share of four large market segments within the computer industry where it traditionally has had less focus.
The CEO sees huge opportunities if Dell boosts its share of the consumer PC market where it typically attracted mostly repeat buyers of high-performance PCs and in the market for computers that run broad business operations of whole companies.
In addition, Dell said the company is embarking on aggressive pushes into computer services and international markets to levels commensurate with the industry in general.
Seventy percent of Dell revenues come from medium and large businesses, with the rest more or less equally split between small business and consumer PC sales. A disproportionate share of Dell sales come from desktop PC sales as opposed to larger server machines or compact notebooks or other devices.
In contrast to Dell's heavy corporate sales focus, the PC industry worldwide derives 45 percent of revenues from medium and large business and 55 percent from consumer and small business. Roughly a third of the total is consumer PC sales.
Referring to the four market segments -- consumer, so-called ''corporate enterprise'', services and non-U.S. markets -- Dell said that, ''We believe that each of these is a $10 billion annual opportunity.''
''We think we can add $40 billion to our company over the next several years,'' he said. By contrast, Dell reported $18.2 billion in revenues in the year ended January 1999 and analysts estimate Dell will generate $26 billion in revenues this year.
Dell suggested that if his company could assume a 20 percent market share within four to five years, up from its current share of about 10 percent, Dell could become a $90-billion-a-year company.
Afterward, a spokesman said the figure was theoretical, not a forecast, and that it assumed current industry growth trends and Dell achieving its targets of boosting the percentage of business in segments such as consumer PCs and services.
As part of a bid to be ''very aggressive'' in the consumer market, which now amounts to ''several billion'' or about 15 percent of its total revenues, Dell said the company would offer lower-priced computers packaged with Internet services.
Asked by a reporter about plans to tie consumer PC sales to Internet access services in order to lower the upfront cost of the machine itself, Dell said new Internet services packages would be unveiled shortly. ''You'll see a much-broader approach in the next 60 to 90 days,'' he said. >>
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