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Dell's path to $80b in revenue downplays the PC

Dell's path to $80b in revenue downplays the PC

Dell isn't getting out of the PC business, but it will emphasize other businesses as its growth engine for the next three to four years.

Dell took great pains to reassure financial analysts Thursday that it can rise above a cooling PC market and continue to grow at rates that will enable it to record US$80 billion in yearly revenue by 2009.

Dell plans to increase its stakes in higher-margin markets such as printers, services, enterprise servers and mobile products such as notebook PCs and personal digital assistants, said Kevin Rollins, chief executive officer, during a presentation Thursday at The Four Seasons Hotel in Austin, Texas. Executives sought to downplay any adverse effects of a gradual slowdown in the PC market over the next few years, as forecast by analysts such as IDC and Gartner.

"We're not tied to PC growth rates," Rollins said. After two solid years of double-digit percentage growth in PC shipments, the PC industry is expected to ship 9.7 percent more units in 2005 than in the previous year, IDC said in March.

PCs as a share of Dell's revenue will decline in the upcoming years as businesses continue to adopt Dell servers, storage devices and networking products as the backbone of their IT infrastructures, Rollins said. Dell also believes it can increase revenue from services tied to the installation and support of that hardware, he said. The IT services market represents a huge amount of potential revenue, but Dell will tread carefully as it grows its services arm, preferring to work mostly with current customers running Dell hardware.

The company did not completely ignore its PC business, which is the largest contributor to its revenue and the worldwide leader in market share. IBM's sale of its PC business to Lenovo Group and the recent change in leadership at Hewlett-Packard present opportunities for Dell's PC business to grow faster than the rest of the market at the expense of its competitors, Rollins said.

"In times of turbulence, customers move to the stable vendors," Rollins said.

But most of the focus at the meeting was on how Dell will improve its other businesses to reach its US$80 billion target for yearly revenue, which the company hopes to achieve by the next three or four years, Rollins said. The clock started on that goal as of this quarter, the first quarter of the company's 2006 fiscal year.

Dell is just beginning to make strides in markets such as printing, software and peripherals, and storage, Rollins said. And it also has room for growth in markets outside the U.S. where HP leads, such as Europe, he said.

The company made it clear, however, that profitable growth is more important in its eyes than just growth itself.

"Our competitors are trying to gain share unprofitably or through acquisitions," said founder and Chairman Michael Dell. The company does not plan to sacrifice profits in order to gain market share, and thinks it can have both profits and market share because its costs are much lower than the competition, he said.

Despite the more sober outlook for PC shipment growth in the coming years, Dell's unique cost structure will allow it to outpace the market on the road to US$80 billion, Rollins said, noting that over the last 10 years Dell has actually posted stronger growth during the slower years for the PC market.

"I can't believe there's another company that makes a dime selling a desktop PC," said Jim Schneider, Dell's chief financial officer. "We are better positioned financially now than at any other point in the company's life."

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