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Dell Sells Back to Basics

ROUND ROCK, Texas -- As Dell (DELL) strives to re-ignite its growth, the biggest changes will happen behind the scenes.

At the company's briefing here with financial analysts Thursday -- its first in three years -- Dell executives laid out a blueprint for a turnaround that was less about sexy headlines than business basics.

Don't expect any big-ticket acquisitions, CEO and founder Michael Dell told the crowd.

And the persistent rumors of a forthcoming product in the vein of Apple's (AAPL - Get Report) iPhone, remain rumors: Company executives said they had no comments on a potential Dell smartphone.

"We have tremendous opportunity focusing on the core notebook business to grow our share," said one executive, suggesting that Dell's near-term focus would be on traditional laptop PCs, where it's 9% share of the worldwide market gives it plenty of room to grow.

Indeed, as Dell officials took the stage one-by-one Thursday it became clear that the main ingredients for Dell's comeback bid involve running the business more efficiently: bringing new products to market faster, outsourcing manufacturing to third parties, and cutting costs across the company.

Dell said its headcount will decline this quarter, as it moves toward its goal of eliminating 8,800 jobs from the payroll. And the company promised to bring its operating expenses back down to historical levels in the second half of its current fiscal year.

But the company didn't provide any kind of financial targets or guidance, other than repeating its goal of growing faster than the industry.

Shares of Dell finished Thursday's regular session up 17 cents at $20.12.

Dell has seen its sales slow in recent years, as the PC market shifted from corporate desktops - Dell's strong suit - to consumer notebook PCs and emerging markets. Last year Hewlett-Packard (HPQ - Get Report) displaced Dell as the world's No.1 PC maker. And Taiwan's Acer has been steadily gaining share.

In November, Dell outlined the first brush strokes of a comeback plan designed to address its shortcomings, flagging five key markets for growth: notebooks, emerging markets, small business, consumer and the corporate market. Company executives used Thursday's analyst meeting to provide investors with more details on its current status in those businesses and its strategy to gain share.

"They peeled the onion one layer further," said one investor who attended the event.

In a sense, much of Dell's plan involves simply getting its operations back to a level that is competitive with its peers.

Last year for instance, Dell abandoned its longstanding practice of selling PCs to customers strictly through direct Internet and phone orders. But company officials said Thursday that it will take another year before the PCs Dell now sells through retailers like Wal-Mart (WMT - Get Report) and Best Buy (BBY - Get Report) can be produced as cost-effectively as those made by its competitors.

To improve its consumer PC profitability, Dell is stripping extra features and capabilities from low-end PC models, a practice it calls "designing to value."

At the same time, Dell said it's filling in gaps in its product lineup, allowing it to compete in more markets. Dell said it will offer three times the number of notebook models by the end of the current year than it did a year ago.

And by offering a larger selection of low-cost notebooks in emerging markets, Dell has a better chance to get its foot in the door with corporate customers who might eventually go on to buy more expensive products like servers and storage systems.
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BBY $31.74 0.00%
HPQ $11.71 0.00%
WMT $67.00 0.00%


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