A Matter of Diversification

By Scott Ferguson  |  Posted 2008-02-29 Print this article Print

Dell remains the top PC vendor in the United States. and a Forrester Research report found the company is still the No. 1 provider of desktops and laptops to the enterprise, but its total sales in the Americas, including its strong presence in the United States, last quarter were up only 8 percent, which lagged behind the rest of the world. Baker said a further downturn in the U.S. economy could compound Dell's problems.

"Financial services are one part of the industry that spends a lot on tech and any impact on that industry could have a broad impact," Baker said. "For years, Dell has been too dependent on American sales and they have not gotten the diversification that they need in order to deliver sales and earnings consistently."

By contrast, the so-called BRIC countries - Brazil, Russia, India, China - offered a much better picture than the U.S. market for Dell, with revenues increasing 36 percent and units shipments up 50 percent. In Japan and other Asia-Pacific countries, revenues increased 28 percent and shipments increased 41 percent.

Unlike Dell, HP has diversified, and about 70 percent of its revenue now comes from outside the United States. HP President and CEO Mark Hurd announced Feb. 19 that the company's net income for its own fiscal fourth quarter stood at $2.13 billion, and he gave a positive outlook for the company in the next three months despite macroeconomic concerns.

While Dell did not offer financial guidance for the upcoming quarter, Michael Dell told analysts in a conference call even if the U.S. economy continues to slow, enterprises will turn to technology ito save money and streamline their own operations.

In a research note, Shaw Wu with American Technology Research pointed that Dell's efforts to grow its business and streamline its operations could come at the expense of profits for the next several quarters.

"Cost savings from its lay-offs could be offset by higher R&D spending and efforts to improve its customer service and retail-distribution initiatives," Wu wrote. "HPQ [HP] and AAPL [Apple] remain very formidable competitors, having caught up on their supply-chain costs and with their greater presence in consumer and international markets. In addition, Acer and Lenovo remain tough competitors."


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