Dell turns to services, servers, storage

Caroline Humer

NEW YORK: Michael Dell, who used a low-cost, high volume strategy to drive
Dell Computer Corp. into the No. 1 personal computer spot, is turning his
attention this week to large corporate computers, data storage machines and
technology services, analysts said.

The founder and chief executive of Round Rock, Texas-based Dell computer will
meet with analysts in New York on Thursday. Other Dell executives, including
chief operating officer Kevin Rollins, will arrive earlier to brief journalists
on Wednesday morning on Dell's strategy for corporate products.

Dell rose to the top of the personal computer industry in 2001 by using its
direct-to-customers sales model to lower prices and take market share from
competitors including Compaq Computer Corp., Hewlett-Packard Co. and Gateway
Inc. "They won a lot of enterprise accounts just by low-cost PC pricing and
now they have the opportunity to upsell servers, services and storage,"
said Robertson Stephens analyst Eric Rothdeutsch.

Dell's gains came amid weak demand from both corporations and consumers for
PCs. While consumer spending has recovered a bit, analysts say they expect Dell
to give an outlook for a delayed recovery in corporate spending. The meeting, an
annual New York City trek for Dell and will include presentations from Michael
Dell, Rollins and chief financial officer James Schneider, comes at a time when
competition in the computer hardware industry is increasing.

Printer and computer maker Hewlett-Packard is set to buy No. 2 personal
computer maker Compaq in the largest technology deal ever. The companies are
waiting for a final vote count to be certain that HP shareholders backed the
controversial plan.

If the merger goes through, the new company will have revenues of about $80
billion, second only to No. 1 computer company International Business Machines
Corp. That's far more than Dell's fiscal 2002 revenues of $32 billion.
Rothdeutsch said that in part because of that deal, he expects Dell to pursue a
pact with a printer company like the one it has with data storage maker EMC
Corp. Dell sells EMC data storage machines and may begin making some of EMC's
low-cost data storage products.

Rothdeutsch says he believes Dell is working on a link-up with printer
company Lexmark International Inc. But he said it may be too early on for Dell
to discuss any printer agreements during the Thursday analyst meeting.

Dell, however, is likely to discuss potential acquisitions and strategies for
its services business, UBS Warburg analyst Don Young said in a research note.
Michael Dell told Reuters last month while attending a conference in Florida
that he was considering such alliances.

"If you look at the new areas of Dell's business, whether it's in data
networking or storage or services, we're looking at alliances and partnerships
and certainly acquisitions would be a potential," Dell said.

Have faith in the guidance

Analysts also expect Dell to back its earnings guidance for the current quarter.
In February, Dell said it expected shipments and revenues to fall 3 per cent to
5 per cent from the previous quarter and said it saw earnings of 16 cents per
share.

Analysts expect the company to book earnings of 16 cents per share on revenue
of $7.7 billion, according to research firm Thomson Financial/First Call.
Warburg's Young said that he expects the company to give a conservative view for
a pickup in corporate spending, saying it will occur in the fall instead of the
spring and summer.

Another influential Wall Street analyst, Goldman Sachs' Laura Conigliaro,
said on Tuesday she expected the anticipated recovery in corporate technology
spending to be more muted than anticipated. She does not cover Dell. Indeed,
Dell has already begun backing away from the notion of a second-half recovery in
corporate technology spending.

During a February conference call, executives declined to confirm previous
projections for a recovery in the PC market sometime in mid-2002, saying that it
only wanted to forecast the current quarter, not the entire year.

Dell shares have declined 2 per cent so far this year while Compaq shares
have gained 4 per cent and IBM shares have fallen 16 per cent. The American
Stock Exchange Computer Hardware Index has fallen 3 per cent during that time.