Dell Focuses on the Broader Picture


Change can be quite painful at times, especially if you're a computer manufacturer like Dell (NAS: DELL) . The IT giant recently came out with first-quarter revenue and earnings that were below analyst estimates. To add to the disappointment, Dell's forecasted second-quarter revenue fell below Street expectations as well.

A variety of reasons have been suggested, ranging from heavy competition from rivals such as Lenovo and HP (NYS: HPQ) to the weakness in European and Asian markets. Apart from these, the growing popularity of tablets such as Apple's (NAS: AAPL) iPad have also contributed to the company's declining sales.

The good thing is that Dell is not taking these things lying down. But first, a closer look at the numbers.

Number talk
Dell's first-quarter revenue fell about 4% from the prior-year period to $14.4 billion on the back of lower sales across many of its product lines. Net income also took a major hit, falling 49% from last year to $635 million.

It was not surprising to see Dell's consumer products business being the hardest hit, as it recorded a 12% decline, given that consumers and businesses have started to prefer more portable devices, with the Apple iPad being a notable example. The drop in overall revenue has also been caused by sluggish PC sales, simply because companies are not yet ready to adopt Microsoft's newest Windows 8 operating system -- they're sticking to Windows 7.

So, what is Dell doing to turn its fall back into a climb?

Not just a PC manufacturer
Dell is slowly making a transition from being just a company that sells PCs to a company that offers a broad range of IT solutions for businesses. In the process, it's also ensuring better margins and profitability in the future.

I like the fact that Dell is increasing its focus on selling high-margin products such as enterprise servers, data storage, and networking equipment. What's even more encouraging is its continued focus on products and services that are used in cloud computing, as businesses increasingly adapt to such systems. Moreover, like rival HP, Dell is also shifting focus to selling niche products such as powerful and lightweight laptops called ultrabooks. And by the end of this year, Dell also plans to unveil its own Windows 8-based tablet. However, the success of Dell's new tablet would largely depend upon the success of Microsoft's (NAS: MSFT) newest Windows 8 operating system. And there's always Apple to contend with.

But I feel that Dell's experience in the enterprise segment with its long-standing relationship with business customers should make it better-placed to compete with rivals.

The Foolish bottom line
Dell is making the right moves by focusing on more sophisticated product offerings rather than on gaining market share in the PC space. Although most of its revenue is still generated by its PC business, it might take a while before the company manages to increase the revenue mix of its other products. I'll be keeping a close eye on Dell's progress, and so should you, by adding it to your free watchlist.

But Dell isn't the only player in the mobile computing space. To find out about the others, you can check out our free report on these three hidden winners of the iPhone, iPad, and Android revolution. Quick! Get it while it's still available!

At the time thisarticle was published Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Microsoft. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.