Dell Sees Economy, Commercial PC Sales Picking Up in 2010
At a meeting of financial analysts, CEO Michael Dell and other company executives reported that spending on commercial IT hardware, especially clients, is beginning to pick up, following the recession in 2009. In the coming year, Dell plans to focus more on its core commercial business, while expanding its IT services portfolio to compete with the likes of IBM and HP.
AUSTIN, Texas - CEO Michael Dell is seeing the demand for IT hardware, especially commercial client PCs, beginning to pick up in 2010, following the global recession of 2009, with both small businesses and large enterprises preparing to reinvest in newer technology.
Michael Dell and the company's executives gathered here June 24 for a meeting with financial analysts and to share their view of the coming year. The day before, Dell released a statement saying the company's revenue forecast for the fiscal 2011 year would grow between 14 and 19 percent compared to previous fiscal year, where revenues hit about $52.9 billion.
While many of Dell's product announcements this year have focused on new consumer technology, such as smartphones and the Streak, a 5-inch tablet-like computer that also works a phone, Michael Dell took the stage and focused mostly on his company's traditional PC business. While Dell has fallen behind the likes of Hewlett-Packard and Acer in terms of PC shipments, Dell estimates that its commercial PC business is still worth $46 billion in annual revenues.
"We are feeling much better about our outlook this year in our commercial business, which is the bulk of our business," said Michael Dell during the morning session with financial analysts.
While Dell and his team focused the first part of the meeting on commercial PCs, Michael Dell said the company's customers are also interested in a range of different technologies, including storage, virtualization, client virtualization and the technology needed to build cloud computing infrastructures. Right now, Michael Dell said the company's technology is used within 19 of the 25 data center farms that serve the world's biggest search, Web 2.0 and social networking companies. Dell added that the company has signed contracts with two of the remaining six top data center farms.
In addition to hardware, Dell executives were also focused on IT services and using those services to drive more and more commercial PC sales. Right now, 55 percent of Dell's services division focuses on hardware services and support, while 65 percent of the company's employees are now focused on IT services compared to 49 percent two years ago.
IT services is an increasingly important part of what vendors, such as Dell, offer to commercial customers to sustain profits. IBM's Global Technology Services division is considered the market leader, while HP, Dell, Oracle and other large IT companies are beginning to invest more resources.
In November, Dell announced it had acquired Perot Systems, which increased Dell's ability to sell PCs, servers, storage and services to specific markets, such as local, state and federal governments, as well as health care.
What is driving the commercial client refresh is the fact that the technology used by large enterprises is beginning to get old and outdated, said Jeff Clarke, vice chairman of operations and technology at Dell. In most businesses, the PCs are about five-years-old, Microsoft Windows XP is in need of a refresh and Intel is adding new x86 processors, such as the Core i7, into the market.
"IT is buying again," said Clarke, adding that Microsoft products such as Windows 7 and Office 2010 are driving IT managers and CIOs to upgrade.
Dell is also looking to continue to reach out to consumers, but the focus would remain on commercial PCs and other enterprise hardware. However, Dell is investing about $100 million in Dell.com and is expanding into other social networking technology, such as Facebook and Twitter, to connect with consumers.
The only market where Dell is seeing some "softness" when it comes to PC sales is the European consumer market, but this is a market where Dell is not as heavily invested in compared to the United States, Russia, Brazil, China and other parts of Asia.
"Given Dell's outsized exposure to the strengthening commercial PC market (~67% of client revenue) and modest exposure to Europe (~25% of revenue), we are not surprised that Dell is blessing consensus numbers for FY11," according to a June 24 Raymond James research note.
While Michael Dell and his executives focused on commercial PCs and IT solutions, no new products were announced. The company also steered away from talking about its smartphone and mobile device offerings, although the Streak and other smartphones for China and Brazil were on display here.
In addition, Dell executives declined to comment on the recent disclosure that the company and the U.S. Securities and Exchange Commission were working to settle allegations that related to Dell's use of rebates from Intel.