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If the company that brought the PC to the masses doesn–t break into the tablet market, however, its growing software and cloud-computing business may not be enough to keep investors happy.
Taylor Provost, CFO.com | US
August 22, 2012
Dell's CFO Brian Gladden told analysts Tuesday he was confident Dell could compete with the increasingly popular tablets and smart phones that he said have taken a bite out of PC sales. He said the company was working hard to stay abreast of the current tablet and mobile-device trend by altering popular products, such as Dell's Latitude laptop, to make them thinner and more powerful. "We're positioned to be a leader in addressing the emerging corporate BYOD [bring your own device] trend with our current notebooks and our upcoming tablets and converged devices," said Gladden.
Gladden also believes that as long as Dell's corporate products and consulting-service lines continue to grow, the company can afford to lose a little on the PC business. Still, the CFO's confidence will be tested because Dell will be forced to evolve to avoid being left in the dust by Apple, Google, or Microsoft. According to a recent McKinsey report, more than 360 million tablets will be sold by 2016 as consumers and corporations alike trade in their PCs for the smaller, lower-cost devices.
McKinsey found that among North Americans and Europeans using technology in the workplace, 5% (11 million) currently use tablets at the office and 20% purchased tablets themselves. Accordingly, Dell is launching some of the first products that will run on Microsoft's tablet-centric operating system, Windows 8, slated to be released this fall. Gladden announced that an as-yet-to-be-released Dell tablet will come loaded with Windows 8 (beginning in the fourth quarter), as will the company's ultrabook.
Dell reported $14.5 billion in second-quarter revenue Tuesday afternoon, 8% less than last year's second quarter. That drop suggests that the company long known for selling PCs to both business and consumers must enter the tablet market or risk losing touch with its customer base. (Gladden wasn't available at press time to respond to questions about Dell's financial approach to its decrease in sales.)
While some of Dell's newer businesses performed well last quarter (its server and networking business grew 14% year-over-year, thanks to increased cloud-computing adoption), the desktop and laptop business that once made Dell a fixture in every dorm room and cubicle in America, and that still accounts for half the company's revenue, continued to sink, with PC sales slipping 22% from last year.
Gartner expects that ultrabooks, which are basically lighter and thinner laptops, will become more popular as computer manufacturers try to reinvigorate the mobile PC business. But even ultrabooks will face fierce competition from new Android and Microsoft tablets, as well as the new iPad.
But Forrester analyst Frank Gillett believes desktop PCs are not dead yet. "Tablets only partially cannibalize PCs," he said in a recent blog post. "Eventually, tablets will slow laptop sales but increase sales of desktop PCs. That's because many people, especially information workers, will still need conventional PCs for any intensely creative work at a desk that requires a large display or significant processing power."
Dell's not going to stop making PCs, and, says Gillett, people won't stop buying them. But its long-term success as an equipment manufacturer depends on keeping up with the changes in the PC industry, and this quarter's results indicate it hasn't yet proven it can.