Dell beats up on Compaq, HP

INVESTORS ARE CURRENTLY SO NERVOUS about tech stocks that they are ready to clutch at any straw, which explains why tech stocks got a boost yesterday when the Dell Corp said its Q3 would be as it predicted earlier.

Dell's Q3 is announced on November 15th next, but during the conference call senior executives appeared to indicate that Compaq, now its brand is "disappearing" is getting a thrashing from the Great Satan of Hardware.

At a conference call yesterday afternoon, Jim Schneider, Dell's CFO, reviewed what he said in August. Current slowdown and resulting negative spending will continue to cause challenges. Revenue $7.2-7.6 billion with stable profitability. There is no doubt that the tragedy of September 11th put additional pressure on the industry, he said, but Dell was continuing to perform as it had predicted, and at the higher end of that range.

European and Asian factories were able to fill orders and Dell's supply chain stayed functional despite problems with flights. While there was a drop in demand in the days following the attacks, Dell managed to continue, Schneider said.

Pricing is within the ranges expected, with component prices continuing to decline - Dell is passing these on to its customers. US operations are on track, with consumer and other business robust. Europe is showing a seasonally soft quarter but Dell is "pleased with its performance".

Dell is gaining market share across desktops, notebooks and enterprise servers. Operating expenses, inventory turns, revenue per employee are at company projected levels. Operating margins in Q2 were 7.2 per cent, he said.

Kevin Rollins, chief operating officer at Dell, said that 35,000 PC systems were shipped as a result of the attacks on US cities, Dell said. "Our number one competitors' brand is disappearing," he said. That'd be Compaq.

SDRAM added to Pentium 4 means the "sweet spot" for corporate mainstream systems, and "Pentium 4 notebooks are out next year," he said. Postponement of upgrades this year will mean big gains next year, Rollins said.

Dell had acquired 36 large corporate accounts worth over $270 million this year, he said. Dell is "penetrating new divisions" - that'd be at Compaq and HP's expense we'd reckon - and offered higher margins, said Rollins.

The new accounts help to stabilise Dell's business, he said. Dell is targeting high growth accounts specifically in high performing vertical markets, while large corporate accounts, up to 93 per cent, are sticking with Dell. Again, that's presumably at Compaq and HP's expense. Each acquired account is a way of assuring growth, he said.

Dell has avoided popular, but unprofitable markets like the retail market. (Compaq and HP again).

Over 40 per cent of global server revenue will use Intel chips next year, he claimed, and in five years time, INTC server platforms will predominate.

"We're not arguing that proprietary technology will become completely passe," he said. Funny, we thought that's exactly what he was saying.

China and Germany are "underpenetrated" compared to the US, he explained rather indelicately. The Dell Smart PC is for the price sensitive Chinese market and presumably will help this "underpenetration".

Services will also drive revenue at a $3 billion annualised run rate. Dell will simplify services in response to what customers want. Microsoft, Oracle, Unisys, KPMG, Cap Gemini and others are partners in these schemes, while Dell has its own internal services operation. Watch out, HP and Q.

In the Q&A session, some lady asked a question about the CPQ, HP merger. Michael Dell said that all sales teams had reapproached stronghold accounts and had a number of successes by "capitalising on confusion". Not all accounts were reconsidering what they were doing at any given time. The disappearance of the Compaq brand meant that Dell was in a "wonderful position" to capitalise on that. µ

* DELL SAID NOTHING ABOUT their strange SpeedStep notebooks during the conference call. We will in a separate story, later on today... things are still pretty much unresolved.