Dell Turns to Computer Services, Servers, Storage
By Caroline Humer
NEW YORK (Reuters) - Michael Dell, who used a low-cost, high volume strategy to drive Dell Computer Corp.(DELL - news) into the No. 1 personal computer spot, is turning his attention this week to large corporate computers, data storage machines and technology services, analysts said.
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The founder and chief executive of Round Rock, Texas-based Dell computer will meet with analysts in New York on Thursday. Other Dell executives, including Chief Operating Officer Kevin Rollins, will arrive earlier to brief journalists Wednesday morning on Dell's strategy for corporate products.
Dell rose to the top of the personal computer industry in 2001 by using its direct-to-customers sales model to lower prices and take market share from competitors including Compaq Computer Corp.(CPQ - news), Hewlett-Packard Co.(HWP - news) and Gateway Inc.(GTW - news)
``They won a lot of enterprise accounts just by low-cost PC pricing and now they have the opportunity to upsell servers, services and storage,'' said Robertson Stephens analyst Eric Rothdeutsch.
Dell's gains came amid weak demand from both corporations and consumers for PCs. While consumer spending has recovered a bit, analysts say they expect Dell to give an outlook for a delayed recovery in corporate spending.
The meeting, an annual New York City trek for Dell and will include presentations from Michael Dell, Rollins and Chief Financial Officer James Schneider, comes at a time when competition in the computer hardware industry is increasing.
Printer and computer maker Hewlett-Packard is set to buy No. 2 personal computer maker Compaq in the largest technology deal ever. The companies are waiting for a final vote count to be certain that HP shareholders backed the controversial plan.
If the merger goes through, the new company will have revenues of about $80 billion, second only to No. 1 computer company International Business Machines Corp.(IBM - news) That's far more than Dell's fiscal 2002 revenues of $32 billion.
Rothdeutsch said that in part because of that deal, he expects Dell to pursue a pact with a printer company like the one it has with data storage maker EMC Corp.(EMC - news) Dell sells EMC data storage machines and may begin making some of EMC's low-cost data storage products.
Rothdeutsch says he believes Dell is working on a link-up with printer company Lexmark International Inc.(LXK - news) But he said it may be too early on for Dell to discuss any printer agreements during the Thursday analyst meeting.
Dell, however, is likely to discuss potential acquisitions and strategies for its services business, UBS Warburg analyst Don Young said in a research note.
Michael Dell told Reuters last month while attending a conference in Florida that he was considering such alliances.
``If you look at the new areas of Dell's business, whether it's in data networking or storage or services, we're looking at alliances and partnerships and certainly acquisitions would be a potential,'' Dell said.
HAVE FAITH IN THE GUIDANCE
Analysts also expect Dell to back its earnings guidance for the current quarter. In February, Dell said it expected shipments and revenues to fall 3 percent to 5 percent from the previous quarter and said it saw earnings of 16 cents per share.
Analysts expect the company to book earnings of 16 cents per share on revenue of $7.7 billion, according to research firm Thomson Financial/First Call.
Warburg's Young said that he expects the company to give a conservative view for a pickup in corporate spending, saying it will occur in the fall instead of the spring and summer.
Another influential Wall Street analyst, Goldman Sachs' Laura Conigliaro, said on Tuesday she expected the anticipated recovery in corporate technology spending to be more muted than anticipated. She does not cover Dell.
Indeed, Dell has already begun backing away from the notion of a second-half recovery in corporate technology spending.
During a February conference call, executives declined to confirm previous projections for a recovery in the PC market sometime in mid-2002, saying that it only wanted to forecast the current quarter, not the entire year.
Dell shares have declined 2 percent so far this year while Compaq shares have gained 4 percent and IBM shares have fallen 16 percent. The American Stock Exchange Computer Hardware Index has fallen 3 percent during that time. |
