Dell's Blueprint for Growth - Analyst Blog
01 7월 2011 - 1:44AM
Zacks
World’s second largest PC maker, Dell Inc.
(DELL) chalked out some plans to earn better returns from
investments. At its recent analyst meeting, the chief executive
officer (CEO) Michael Dell expressed intentions to focus on the
small and medium business (SMB) and health care segments.
Moreover, the CEO expressed optimism regarding Dell’s ability to
shift focus to software applications and corporate-data management
technology, to reduce dependency on PC sales.
Management believes that Dell is well positioned to benefit from
a multi-year corporate PC refresh cycle. The company generates
about 70.0% of sales from PCs and related products. The Dell chief
believes that selective acquisitions, expanding product lines and
additional sales staff could support expansion.
Now-a-days, Dell’s prime area of interest happens to be cloud
computing. Accordingly, the company is on its way to build data
centers so as to capitalize on related growth prospects.
In an effort to offer its cloud-computing customers a more
complete line-up of products, Dell will sell the whole data center,
instead of selling servers and storage solutions separately. For
this purpose, Dell will spend roughly $1.0 billion in the next two
years to open 10 data centers.
Dell also plans to double its Enterprise business (server,
storage and networking) from ~$18.0 billion to ~$30.0 billion by
2014. This expansion activity will be backed by continued
acquisition of scalable technologies and strong organic growth.
Dell expects its Services business to grow at a 7–9% CAGR over
the next 3 years. Management asserted that its health care services
business is quite sturdy and is now planning to expand its
financial services. The continuous demand for Dell’s services can
be credited to the addition of new products from acquired
businesses.
Apart from adding products to the Dell suite, acquisitions also
make it a comprehensive storehouse of corporate information
technology needs. In the last fiscal year, it acquired as many as
eight companies, including information-security firm SecureWorks
Inc. Dell's acquisition strategy has been paying off, as affirmed
by its higher margins and new customer wins. It aims to use
acquisitions to increase its presence in the storage business and
expand its services and software units internationally. Moreover,
prospective acquisitions of storage vendors will make Dell a strong
competitor of key players such as International Business
Machines Corp. (IBM) and Hewlett-Packard
Co. (HPQ).
Management did not update the guidance, but rather reaffirmed
its prior long-term financial targets of 5-7% revenue growth, more
than 7% operating margin, and operating cash flow in excess of net
income. The lion's share of the company's research and development
investments will be dedicated to servers and storage in fiscal
2012.
Last but not the least, Dell announced its intention to buy back
an additional $2 billion of common stock by the end of fiscal 2012.
The company has already spent $1.6 billion on the repurchase of
shares.
We think that the analyst day was not very eventful as no
financial data was revised. However, investor sentiment seemed
positive. The shifting focus from legacy PC sales toward the
data-management market was notable and could drive revenue upward.
Moreover, investors may be expected to remain loyal since they
continue to get a good return on their investments in Dell.
However, we should keep in mind that margins may fall due to
acquisitions.
Currently, Dell has a Zacks #2 Rank, which equates to a
short-term Buy recommendation.
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