Dell Looks Beyond PCs

Global markets, new wares spur company.

Dell Inc. built its business on the sales of desktop PCs to companies and consumers in the United States. However, as it pushes to a new goal of $80 billion in revenue within the next three years, Dell will rely less on the U.S. PC business, instead looking to new products and global markets to fuel its growth, according to officials.

At the companys annual analyst meeting here last week, CEO Kevin Rollins and Chairman Michael Dell said the company is continuing to shift from a box maker to a global IT supplier, with new businesses—from printers to flat-panel displays—joining more established units such as servers, services and storage in pushing Dell forward.

"Theres no question our client products are important to us, but the amount of importance has changed," Dell said.

Two years ago, the company changed its name from Dell Computer Corp., with executives saying that it was growing beyond computers. That shift will continue in the coming years, Rollins said. The PC business accounted for about 40 percent of Dells $49 billion in revenues during fiscal year 2005; when revenues reach the $80 billion mark, that percentage should drop to between 30 percent and 35 percent, he said.

"Were achieving scale in business categories that are going to take us beyond Dell PC," Rollins said.

Dell executives said growth will also be fueled by regional operations outside the United States. In the last fiscal year, non-U.S. business accounted for 38 percent of Dell revenues, Rollins said. He said he expects that to reach as high as 45 percent by the time Dell hits the $80 billion goal.

PCs have enabled Dell, of Round Rock, Texas, to build its installed base, executives said. Now customers are looking to Dell for IT products beyond computers.

Seton Healthcare Network, based in Austin, was a longtime Dell PC customer when officials there decided in 2001 they wanted outside help in managing their IT infrastructure. They turned to Dell, not only because of its hardware expertise but because of its ability to manage its own business, said Tom Gallagher, Setons senior vice president of business development.

"We said, lets take a look at a company we thought had a great strategic planning [model] itself and see if they could help us develop a plan that could be implemented," Gallagher said, adding that he expects to continue the relationship when the contract expires next year.

Some analysts at the meeting were skeptical that Dell can continue to drift from its PC roots without having some detrimental effect on its business. One said that given the bundling of products—such as printers being sold in conjunction with computers—that PCs could account for up to 70 percent of Dells revenues. However, officials said many of the new products are PC-related, not PC-dependent, and will mature into their own businesses.

In addition, while Dell is a well-known company, it holds only about 5 percent of the overall global IT market, giving the company a lot of room to grow, Rollins said.

It will also be helped by what he said is "turbulence" in the industry, including IBM selling its PC business to Chinese computer maker Lenovo Group Ltd. and new leadership at Hewlett-Packard Co. and Sony Corp.

"For Dell, turbulence represents opportunity," Rollins said.

Such disruptions can persuade customers to migrate to a more stable company, Rollins said. He expected the IBM-Lenovo deal to be disruptive but said it is too early to tell how HP will respond to Mark Hurd replacing Carly Fiorina as CEO.

In an interview after the analyst meeting, Rollins said HP under Fiorina "didnt necessarily have bad leadership, but it had a bad strategy." That could change under Hurd, who Rollins said has shown during his time with NCR Corp. the ability to make the difficult decisions necessary to get a company moving forward.