Dell execs map growth plans

NEW YORK -- Shaking off the economy's lingering slump, Dell Computer used its annual meeting here with financial analysts to lay out its strategy for doubling its revenue within the next few years.

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While other vendors, notably IBM, are focused on expanding their software and services businesses to compensate for what they view as a commoditizing, low-margin hardware sector, Dell is comfortable remaining heavily exposed to that market, said Dell chairman and CEO Michael Dell.

"We believe our business model is structurally advantaged," he said.

Which isn't to say Dell isn't pursuing diversification. The company's closely watched drive for a larger presence in the enterprise market is going well, executives said, as Dell establishes partnerships and extends its product line to boost sales of servers, services and storage hardware.

Helping Dell on its enterprise push is rising customer demand for inexpensive hardware on which to run standard operating systems such as Linux or Microsoft's Windows, executives said.

"The push toward industry standards-based systems is moving higher and higher up into the enterprise," Dell said during a Wednesday presentation in New York for customers, journalists and analysts. "Standards are the future of enterprise computing."

Dell has a new cohort helping him evangelize standardization: Oracle Corp. chairman and CEO Larry Ellison.

Already partners, Oracle and Dell said this week they are deepening their alliance. The two companies extended an existing U.S. joint sales agreement to incorporate Europe and Asia, and said their consulting organizations will partner on a new set of professional services aimed at customers migrating from legacy systems to an Oracle9i database deployment on Dell server and storage hardware.

Once a staunch ally of Sun Microsystems Inc., Ellison is now vocally championing Linux as the enterprise operating system of the future. In a joint appearance Wednesday with Dell, Ellison enthusiastically described Oracle's experience with internal migrations from proprietary systems to Linux running on Dell hardware. At a lower cost, Oracle has recorded gains in speed and reliability, he said.

"I believe that in a couple of years, Linux and Dell will be the dominant computing combination in the enterprise," Ellison said.

Storage vendor EMC is another key Dell partner aiding the company's enterprise growth. Dell this week began worldwide manufacturing of jointly branded Dell-EMC storage systems, and introduced new SAN (storage area network) bundles aimed at smaller businesses.

International expansion is also key to Dell's quest to double the company's revenue within the next few years, executives said. In many markets outside the U.S. , Dell's market share remains in the single digits, said president and COO Kevin Rollins.

Expanding globally into key international markets such as China , Japan , Germany and France is a "tier one" priority for Dell, along with furthering its enterprise offerings, he said.

With those two initiatives as its primary focus, other new forays, such as Dell's recent entry into the Hewlett-Packard-dominated printer market, are about long-term positioning rather than immediate sales growth, Rollins said.

While Dell aims to increase its services business, it views the sector differently than do rivals such as HP and IBM, according to executives.

Like other IT sectors, the services business is commoditizing, and routine support and maintenance work represent the bulk of the market's revenue opportunities, Rollins said. Consequently, Dell won't focus on the sort of high-end custom services IBM purchased PwC Consulting to address. Instead, it will pursue "more mundane" but higher-margin services jobs, he said.

While Wall Street analysts covering Dell appear comfortable with the company's confident predictions about its current sales and future growth  -- all of those polled by Thomson First Call expected Dell to hit its first-quarter per-share earnings forecasts -- several said that the IT industry's continuing downturn could yet thwart Dell's ambitions.

"We remain concerned over the deterioration in industry IT demand since late January, especially in the U.S. with some potential signs of a slowdown in Europe," said Lehman Brothers analyst Dan Niles, in a research note issued before the meeting.

Merrill Lynch, which anticipates no imminent business turnaround, cautioned Monday in a note that enterprise IT demand, particularly in the storage market, is a "swing factor" in Dell's plans. Share gain should give Dell some buffer, though, to weather a rough economy, the research firm said.

Meanwhile, Dell executives said the company will continue its push into new market segments.

Last year, Dell posted $35.4 billion in annual revenue, the majority from PC sales. By the time it hits its growth target and increases revenue to $60 billion annually, the company's goal is to draw less than half its revenue from selling PC systems, with the rest coming from servers, storage, services, software and peripherals, Rollins said.

And as Dell repositions itself as an enterprise vendor, heavyweights in the industry -- like Oracle and EMC -- are responding, recognizing the customer trend toward standardized systems running on commodity hardware, Dell said.

"Now it's kind of shifting, to them coming to us and saying, 'Hey, we'd like to partner with you,'" he said. "We are the most clearly positioned company to stake out this kind of territory."