Dell announces move into Net infrastructure

Friday, April 7th 2000, 12:00 am

By: News On 6

NEW YORK - Dell Computer Corp. said Thursday that it is moving full speed into the growing market for Internet infrastructure as more companies - especially small and midsize businesses - rush to create an online presence.

Internet infrastructure is the combination of hardware, services and access underpinning the electronic economy.

Servers, or computers that run other computers, are in particular demand as the Web infrastructure grows in complexity.
Dell used a conference with analysts to announce its new line of Dell PowerApp servers, designed to be installed and operational in a "matter of minutes."

The new emphasis on infrastructure reflects the realities of falling PC prices and Dell's admission in March that it won't be able to sustain last year's growth rate of 38 percent this year. Its guidance for growth this year is unchanged at roughly 30 percent.

"What we're doing is moving from providing products to service," chairman and chief executive Michael S. Dell told Wall Street analysts.

Shares of Round Rock, Texas-based Dell closed at $51.56 in regular trading Thursday, off $2.36.

Some analysts questioned whether Dell's apparent shift in strategy amounted to throwing in the towel in the tough consumer PC market, where it is No. 2 in the United States and No. 1 worldwide.

Dell pioneered the direct method of PC sales - online and over the telephone - giving it a leg up on pricing.

Rick Schutte, an analyst with Goldman Sachs & Co., said Dell is wisely copying its consumer market model onto the burgeoning Internet market, where customers need more than just a PC on a desk.

That is, the company is entering a market where the competition has a higher cost structure, he said.

"If you look at Dell's history, this is what they do so well. Pick markets where there's a kind of price umbrella and then come in with a cost structure that wins them customers," he said.
"Dell in my opinion has already won the PC market," Mr. Schutte said. "That's done. So I want them to focus on something else."

In an interview, Mr. Dell acknowledged that the company's "story" to analysts was not easy to digest.

"I think what we delivered today was pretty complicated. But we're not abandoning anything. Eighty-five percent of our profits are from the consumer market."

Dell posted $25 billion in revenue last year.
Mr. Dell also said that he is not impressed by the Internet device market and that he won't be making an entry any time soon.

However, he allows that he has "played around with" i-opener, an appliance made by Netpliance Inc. in nearby Austin.

"I just don't see anybody making any money with these things and am astonished the market would throw money at these companies."

Few question the potential for the infrastructure market. Projections are that it will grow from $124 billion last year to $370 billion by 2003.

To capture a chunk of the business, Dell Computer outlined several new initiatives.
Central to the strategy is the market for low-cost servers, or special appliances devoted to such tasks as Web serving.

Appliance servers alone could amount to a $10 billion market by 2003, Mr. Dell said.

Mr. Dell minimized the importance of rival Compaq Computer Corp.'s lead in the server market, suggesting that the Houston company gained the position by virtue of acquisition, not internal growth.

"They got the lead by buying Digital [Equipment Co.]," he said. "But we took 10 points of market share last year, and when we're the leaders, we're going to shout it from the mountain tops."

With its branded products, "Dell should be able to dominate this market," Ashok Kumar, senior research analyst for technology with U.S. Bancorp Piper Jaffray Inc., said recently.
Jim Vanderslice, Dell's vice chairman and previously a career IBM Corp. employee, declined to put a fine point on profit margins in the coming year. He reminded those seeking specific figures that Dell had just weathered a quarter marred by chip shortages and Y2K jitters.

"We're coming off a pretty tough fourth quarter," he said.

Mr. Vanderslice said that as of March 31, Dell Ventures had unrealized gains of $2 billion.
He didn't say how much of that gain has been wiped out by the Nasdaq's wild ride of late.

When the topic briefly turned to Microsoft Corp. and the effect of the antitrust verdict on Dell Computer, Mr. Dell tried to change the subject.

Like other PC companies, Dell is intimately tied to Microsoft's Windows operating system.
"We're not here to discuss Microsoft," he said, adding that he expects no diminution of demand for the Redmond, Wash., company's products because of the ruling.