Dell ( DELL) CEO Michael Dell is expecting a big rebound in IT spending next year, although he warns that businesses and consumers are still nervous about opening up their wallets.

"In 2009 there has been a deferral of spending that we think sets up for a refresh in 2010," he said, during the company's annual analyst meeting Tuesday. "What goes on in the economy, virtualization and new products from Microsoft ( MSFT) and Intel ( INTC) will play a role there."

Dell explained that users have delayed their IT purchases during the downturn. Average life cycles for desktops, servers and storage are now four years, three and a half years, and three years, respectively, he added.

There have, however, been some hints that demand is improving, albeit modestly, and Dell predicted that customers will refresh their storage and servers first, followed by client devices such as PCs.

Earlier this week Dell offered a financial update, predicting sequentially improved second-quarter sales in line with Wall Street's expectations. The Round Rock, Texas-based firm also forecast a modest decline in gross margins, driven by higher component costs, competitive pricing, and mixed demand across products and business segments.

"Global demand appears to be stabilizing," said Brian Gladden, the Dell CFO. " But it's mixed in different regions and product areas."

The finance chief added that large enterprises and SMBs are still very weak, although Dell's consumer and public sector businesses are expected to grow in the second quarter. Similarly, Gladden described Western Europe as Dell's toughest market at the moment, whereas Asia is improving, driven largely by China.

Gladden also reiterated Dell's commitment to reduce its annual costs by more than $4 billion by the end of 2011.

"We're on track to deliver this four billion dollar cost saving by the end of next fiscal year or earlier," he said, adding that this will be boosted by improved manufacturing and supply chain processes.

Dell, which has reduced its capital expenditure by 50% over the last several quarters, has not had the easiest of times during the economic downturn. The PC maker has certainly felt the strain of the spending slowdown, which has hammered sales to consumers and businesses. During its recent first quarter, Dell suffered sequential and year-over-year sales declines in all areas, most notably in desktop PCs and network storage equipment.

Dell, which competes with Hewlett-Packard ( HPQ), IBM ( IBM), and Lenovo, recently revamped its enterprise computing story, boosting its efforts in services, storage and virtualization.

There have even been rumors that the firm is planning to offer a pocket-sized Web device, or even enter the smartphone market.

Dell's stock has risen steadily since March, and the company has also been cited as a bullish option play.

Long-term, Michael Dell promised that the company will grow its business with organic investments, partnerships and "inorganic" acquisitions. The CEO did not divulge the firm's specific M&A plan, although he outlined some of Dell's product strategy. "Think about the data center, think about servers, think about the cloud and on-demand IT services."

The CEO also forecast "significant opportunities" in emerging countries and small customers.

Despite Michael Dell's upbeat tone, the company's stock plunged Tuesday, dropping 99 cents, or 7.6%, to $12.03, outpacing the broader decline in tech stocks that saw the Nasdaq dip 0.17%.

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