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."
Write to Ian Sherr at ian.sherr@dowjones.com
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