Lately Dell ( DELL) has been powering into new markets right and left. Earlier this week, the boxmaker said it would start selling PCs through dealers. That follows on last month's comment from a top executive that the company may start selling its own printers as early as the end of the year. Management has also hinted it will announce plans to push into the handheld market. Those moves may be welcome news to investors underwhelmed by the weak growth prospects of the computer business. Presumably, they'll offer a chance for Dell to graft its hard-nosed share-gain tactics onto new markets -- a worrying prospect for existing competitors. But, really, the new niche markets don't represent any significant changes in Dell's direction. On closer inspection, they look relatively insignificant, at least in the near term, when considered in light of Dell's $31 billion in revenue. Dell's core business is still firmly tied to PCs, which account for some 70% of revenue. And for growth, its prospects hinge on enterprise sales.
But there are both short- and long-term risks. Most analysts expect that the percentage growth for worldwide PC shipments will hover around the zero mark this year, possibly growing in the low single digits. Although corporate buys will pick up at some point, possibly in 2003, the longer-term prospects for computer sales aren't anything to be thrilled about. Another potential trouble spot: the merger of PC operations between Hewlett-Packard ( HPQ) and Compaq. "We believe that H-P will strive to maintain its now number-one market share position through aggressive pricing tactics and by working off its excess inventory, which should hurt Dell in the second half of 2003," cautioned Winnitzki in a recent note. On the positive side, though, Dell's focus on the U.S. corporate market will be a boon when IT spending eventually picks up. "We upgraded Dell on July 12 based on our feeling that we were seeing some stabilization in enterprise demand in the U.S., even as Europe and Japan were as bad if not worse" than expected a few months ago, says Lehman Brothers' Dan Niles. Dell draws a relatively high portion of its business from the U.S., which accounts for about 70% of revenue, vs. only around 20% from Europe. So relative to other players, says Niles, Dell "will feel much more impact when the U.S. market does turn around."