Dell still has its share of challenges. The sluggish U.S. economy has affected its business as banks and other financial-services companies trim tech spending. The company's retail PC share is still just one-fourth that of HP. And more costs must be cut. Dell has pared 7,000 jobs in the past year -- not counting new staff who joined through acquisitions -- and plans to cut an additional 1,900 as part of an effort to eliminate $3 billion in annual costs by January 2011.
War Chest The PC maker is redirecting the savings in part toward acquisitions. Dell has $9.8 billion in cash and short-term investments, and analysts say it should spend more to help itself grow. "They have to get more acquisitive," says Eric Gebaide, a managing director at investment bank Innovation Advisors, who has discussed deals with Dell in the past. Possible paths could include bulking up in IT services, a la HP and IBM (IBM), or expanding its software presence, like Sun Microsystems (JAVA). "Where does Dell get that extra juice?" Gebaide says.
One possible target could be consulting firm BearingPoint (BE), whose market value has dropped to below $170 million, Gebaide says. Adding security software could also be a natural fit. "They could make a big impact without a lot of bucks," he says.
Dell spoke with the BusinessWeek tech team in San Mateo, Calif., about the company's second-half prospects, international sales, and acquisition plans. Edited excepts follow.
Dell's consumer PC and notebook business is growing and doing well. Can you talk about how profitable that business is and anything you're doing to gain a competitive advantage against HP?
Our consumer business in the first quarter was profitable. I don't think most people were expecting it to be profitable. It's a combination of [higher] margins and [lower] costs but there's more work to be done there. A year ago we had zero retail stores selling Dell; now we have about 13,000. We fell into a bit of disrepair and now it's restoring back. If you grow units at 47%, that's way faster than the industry and suggests there was some latent opportunity for the brand. With the right products, services, distribution, and costs, we've kind of reignited the thing. You'll see the growth rate be every bit of that in the second half of the year, if not more We're going to have a big second half.
We're also seeing an interesting phenomenon where the direct business is starting to grow again. A lot of people had written off the direct business. Now the brand is ignited again and we've got some exciting products; marketing is interesting again.
How are your business computing sales faring in this economy, and what's happening in the important financial-services sector?
When you look at the macro industry, it looks like unit growth of computers is holding up pretty well, largely due to the fact that there's an enormous amount of growth outside the U.S. Inside the U.S., growth has dropped to the mid-single digits. Interestingly, our growth has held up in the low teens. So if you take Dell out of the numbers, unit growth in the U.S. would be about zero. So we're kind of back to our old tricks again.
When a particular industry goes through a challenging time, you see a predictable pattern of behavior. It goes something like this: They don't buy anything . These large financial institutions, generally speaking, they're not going away . The other interesting thing is IT is a productivity-enhancing tool. So in some ways you can delay an expenditure and it just pops right back up later.
