Dell, Look Abroad for Growth

Following Dell's (DELL - commentary - Cramer's Take) May 31 earnings report, I had a couple of people ask whether there weren't "other things" that needed to be fixed at the company. I'm certain there is a long list of areas to be fixed, adjusted, changed or junked, but I'm also quite certain that the company's long-term future rests in its ability to develop the organization into a global player. "Surely he jests," you're probably thinking right now. Dell is already a global brand and successful global organization.

Let's look at some facts. Did you know that Dell, a current holding of the Telecom Connection Model Portfolio, is about the same size as IBM (IBM - commentary - Cramer's Take) and Hewlett-Packard (HPQ - commentary - Cramer's Take) -- domestically, that is? Chart 1 below shows the domestic revenue for the three for the fiscal year ended closest to December 2006. They're essentially within 10% of one another. But look at chart 2, which adds on the international revenue. IBM and Hewlett-Packard dwarf Dell.

Going Global

Investors are strongly encouraged to diversify portfolios as a means of reducing risk and leveraging the performance of multiple sectors and asset classes. The same is true of building a company for the long term.

Dell diversified its product lines into notebooks, servers and peripherals as those product segments became viable. But the same needs to be true for geographic diversification. Unfortunately, it appears that international operations were little more than a checklist item, rather than the focus, of the company's expansion plans. It's like that one patch of grass in your backyard that the sprinkler doesn't quite reach. It survives, despite the lack of attention, but doesn't really thrive.

While one would expect Dell's international revenue to be growing at a faster rate than IBM's or Hewlett-Packard's (it is), it is still dwarfed by the level of offshore business being added by the other two.

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Bob Faulkner has been in the investment business for 18 years with an exclusive focus on technology stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Faulkner appreciates your feedback; click here to send him an email.

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