By Ian Sherr
SAN FRANCISCO--Dell Inc. (DELL) spelled out plans to trim its costs by $2 billion over the next three years, along with growth initiatives that include boosting businesses beyond personal computers.
The Round Rock, Texas, computer giant said during a meeting with analysts that savings would come from moves that include streamlining its supply chain and consolidating sales support staff, a similar tack that rival Hewlett-Packard Co. (HPQ) recently outlined. Dell also said it will seek to increase operating income and sales from such non-PC parts of its business as software and services.
Still, Dell said computers are an important business for the company, generating hefty revenue and unit shipments while allowing it to buy parts in bulk, keeping costs down for other, higher-margin products such as servers, storage and networking equipment. "The scale dynamic is still important," said Brian Gladden, Dell's chief financial officer, during the event.
Dell said what it calls its "end-user computing" business--which is made up largely of PCs--should reach $47 billion in revenue by its fiscal year 2016, putting it at a level just shy of what it was five years ago. The company said a lot of that growth will come from emerging markets, such as China, India and Brazil, where PC sales continue to grow.
The company's growth outlook comes a day after it unveiled plans for its first-ever dividend, at a rate of 8 cents per share and a yield of 2.7%. The shift brings Dell in line with industry heavyweights such as H-P and Apple Inc. (AAPL), which began the process to issue its first dividend earlier this year.
Analysts questioned whether Dell's decision to issue a dividend was the right one, considering it is a company still in the midst of a turnaround effort. Michael Dell, the company's chief executive, sought to allay those concerns, saying the growth opportunities and the company's free cash flow made the dividend a sound choice. "Our industry is constantly in transition," he said.
The company also shrugged off last month's reported 33% fall in first-quarter earnings, which it attributed to poor execution among its sales staff.
Steve Felice, the company's chief commercial officer, said the company is directing its sales force to seek more deals--rather than focus on a few large ones--and to expand their coverage across various countries. "There was a lot of white space we were not properly covering," he said.
In addition, Mr. Felice said, product experts will be expected to know more about Dell's lineup, reducing the number of overall staff involved in a particular sale.
Dell also talked about its plans for addressing the fast-growing smartphone market. In particular, while the company doesn't produce smartphones for the U.S. market, Dell said it still sees opportunities in creating software to track and manage those devices, as well as helping them to securely connect to their business's networks.
Overall, Dell said it thinks it can expand its software business fourfold to roughly $2 billion by its fiscal year 2016. Similarly, Dell said it expects its sales to corporate customers can grow by more than 45% over that time to about $15 billion, while it believes its services business can grow more than a quarter over that time to about $10.5 billion.
Together, those efforts won't be big enough to beat out the end-user computing business, however. But, Dell says, they should offer better margins.
The computer maker also said it plans to grow its PC division's margins by selling Dell-branded accessories, such as travel bags, keyboards and mice. Dell pegged the growth opportunity at roughly $1 billion, and said the thick margins should help to offset the typically anemic profits most companies make selling PCs.
Dell said it sees a $1 billion opportunity selling touchscreen tablet computers running Microsoft Corp.'s (MSFT) upcoming Windows 8 software, due later this year. The company's bullish view of Windows 8 stood in stark contrast to its hesitant view of tablets made using Google Inc.'s (GOOG) Android operating system.
Two years ago, when asked about the company's then recently released "Streak" Android tablet-phone hybrid, Mr. Dell said the device's sales were interesting, but "immaterial" to the company's overall business. Dell stopped selling the Streak in the U.S. last year.
Brian White, an analyst at Topeka Capital Markets, said he was impressed with Dell's strategy and upgraded the company's shares to "buy" from "hold," in part because of Tuesday's dividend announcement. But, he added, the company appears to have the right strategy in place. "The long-term evolution of Dell's portfolio remains a positive trend," he wrote in a note to investors. "However, we expect this will take time."
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