Dell sees industry demand strong, no growth let-up
By Eric Auchard
NEW YORK, April 8 (Reuters) - Dell Computer Corp. (Nasdaq:DELL - news) on Thursday said it sees no change in demand for personal computers, as analysts have feared, and expects to post sequential revenue growth this quarter -- in contrast to its peers.
Executives at Dell, the leading direct distributor of PCs, said the computer industry should continue to grow at historic levels of around 14 to 15 percent this year while Dell will grow at a multiple of the market.
Officials of the Round Rock, Texas, company made the comments while delivering their annual strategy update to Wall Street analysts at a morning meeting here.
Seeking to reassure jittery Wall Street investors, Michael Dell, company founder, chairman and chief executive, harped on the distance between Dell's direct sales approach to customers and the indirect distribution on which its major rivals largely rely.
Dell, backed by his entire top management team, said the company's basic business model continues to steam ahead even as it transitions to focus on Internet sales, raise revenues from non-hardware items and increase its consumer PC market share.
''I believe that industry demand is strong and healthy,'' Michael Dell told analysts attending the meeting.
Chief Financial Officer Tom Meredith later declared, ''We are pleased with our position over all geographies, all product segments and all customer segments'' -- sounding more like an evangelist than a corporate executive as he spoke.
The officials were responding to investor fears that have been triggered in recent months by warnings of weak sales early in the year by rivals including Compaq Computer Corp. (NYSE:CPQ - news), the world's No. 1 PC maker.
''What you have from us is a commitment...(that) we will continue to grow at a multiple of the market and we will also provide you with quarterly growth,'' Meredith said directly.
Dell historically has traditionally grown at least three times faster than its major rivals including Compaq, IBM (NYSE:IBM - news) and Hewlett-Packard Co. (NYSE:HWP - news)
Dell's competitors normally post strong holiday-fueled fourth quarter results followed by sharp sequential declines in the first quarter. By contrast, Dells' revenues grow consistently each quarter without such ups and downs.
Meredith told analysts they should leave the meeting feeling comfortable about Dell's position in the market selling PCs to large corporate customers, both in its current quarter ending in April and for future quarters.
To insulate itself against the downward pressure on PC prices being felt industry-wide, Dell officials described how the company was focusing on boosting the percentage of revenues its receives from items other than PCs themselves.
These include follow-on sales of peripheral products like printers, customer financing arrangements and computer services to help customers install and maintain PCs.
Dell officials said 38 percent of revenues come from non-hardware items, up from 31 percent a couple of years ago.
Responding to an audience member's question about Dell's recent $16 billion technology supply pact with IBM, Meredith said the value of the seven-year deal could rise if IBM lives up to its commitments. ''I think we can surpass that number,'' he said, referring to the $16 billion figure.
He alluded to how the relationship could involve additional ties to IBM's Global Services division, which could provide Dell customers with computer services that Dell is not equipped itself to provide.
Meredith said the pact would allow Dell to introduce IBM technologies ''faster than their sister company,'' referring to the IBM Personnel Systems Group, or IBM's PC business.
Pointing to IBM's recent disclosure in its annual report that the IBM PC division had generated $12 billion in sales in 1998 but lost $1 billion in the process, he said, ''I can't believe our relationship won't be enhanced over time.''
But he stopped short of commenting on the widespread speculation among Wall Street analysts that Dell is gearing up to take over production of personal computers for IBM. Such a pact would allow IBM to exit the PC business it helped to pioneer in favor of selectively supplying PC components.
Dell management strove to allay concerns among analysts that the company might repeat its disappointing fourth quarter performance, when revenue growth dipped below its historic rates above 50 percent for the first time.
Meredith said the main lesson of the fourth quarter disappointment and the resulting sell-off in the company's high-flying stock was ''Don't miss.''
Missing the quarter is Wall Street's jargon for failing to meet analysts' expectations for either revenues or earnings.
Paul Bell, vice president of the consumer and small business unit, said Dell was taking steps to raise the profile, and market share, of its consumer PC business, which is expected to produce better than $3 billion in revenues this year.
He vowed to sell PCs at increasingly lower price levels, but only when he could do so profitably. In March, Dell introduced its first PC priced at $999, with monitor, a level far below the $1,799 that was its lowest price PC a year ago.
''Today, I'll be candid with you. We cannot make money at $400,'' he said, referring to the price levels of some of the industry's lowest-price competitors. |
