Dell CEO Says Shift Away From PCs Is Helping Margins, Profits

Dell Inc. (DELL) Chief Executive Michael Dell says the company's shift away from personal computers is paying off and that the company will continue investing to change the margin and profit profile of the company.

The Round Rock, Texas, computer maker has been weaning itself off PCs, which have slim margins, and acquiring its way into higher-margin services businesses. Dell two years ago purchased Perot Systems, an information-services company, and has added other software and hardware makers as it tries to offer a richer array of products.

The chief executive, speaking Wednesday during the Bernstein strategic decisions conference, said the company's transformation toward solutions and services with a higher degree of intellectual property is helping margins and should drive profit growth going forward.

"I think we can continue to change the profile of the company in terms of margins [and] operating profits, and we're on a pretty good path to do that," he said. The PC is "not the epicenter of the profit engine for the company."

Dell noted the company doesn't have plans to divest its PC business, though it has sold various facilities as it rebalances its portfolio.

He added the company will continue to make organic and inorganic investments, particularly in areas that have higher returns, such as storage, and that it will look to vertical markets. He said the company also will look for ways to provide a more integrated offering, though he doesn't believe companies will look to buy everything from one provider.

Many tech companies, including rival Hewlett-Packard Co. (HPQ), have been working to build themselves into one-stop shops, providing everything from storage to networking to servers.

Meanwhile, Dell said the company hasn't determined a successor for his planned or unplanned departure, noting he has no plans to retire or take the company private.

"I'm not planning to leave, and the board hasn't told me I'm leaving," he said. "I will continue to do this for quite a long time."

The company last month reported its profit nearly tripled as it benefited from favorable component costs, strong corporate demand and rising sales of its higher-margin products.

The CEO said the company's margins have risen of late as it moves to price its products based on value rather than based on cost. He also addressed worries about margins being unrealistically high, saying the company has posted a couple quarters of margins above 20%.

People "felt the prior quarter was unrealistically high," he said. "All you have to do is wait another quarter to find out. We only give a report every 90 days."

In addition, Dell expressed doubts that PCs will go away but said there were "a lot of things notebooks screwed up," including power management and weight.

"We can actually make a better notebook that's closer to tablets," he said. "We're still going to do tablets...but there are many ways to learn from this on how the notebook gets better."

Chip giant Intel Corp. (INTC) earlier this week touted what it dubs "ultrabooks"--much thinner and lighter laptops, with mainstream price points and tablet-style features such as touchscreens and the ability to switch on quickly to let users call up websites without waiting. The company has been working to bring down the power level of its chips and compete with designs based on ARM Holdings PLC (ARMH, ARM.LN) architecture.

The CEO said that once chips based on ARM architecture appear on devices using Google Inc.'s (GOOG) Android operating system and Microsoft Corp.'s (MSFT) Windows platform, "we're going to have a pretty exciting environment here."

"I think there are still a fair number of skeptics on our story," Dell said. "And I think the results...are starting to tell a different story. If one believes the changes we're making are real and the results are real, then clearly, that business is undervalued."

Dell shares, up 19% over the past 12 months, slipped 3% to $15.60 Wednesday.

-By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com

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