July 14 (Bloomberg) -- Dell Inc., after cutting spending, raising money in the debt market and temporarily suspending its share-buyback program, says it is reviewing alternative sources of capital to bolster its unit that provides customer financing.

The world’s second-largest maker of personal computers has had to fund the unit internally and will likely need to provide more capital to the business later in the year, Chief Financial Officer Brian Gladden said today. The unit provides financing to customers who buy Dell products and services.

“We continue to review alternative sources of capital as markets continue to loosen up and we’ll update you on those as we move forward,” Gladden said at an analyst meeting in Austin, Texas. “From a capital allocation standpoint, we continue to be well positioned for the future with strong liquidity.”

Chief Executive Officer Michael Dell said today there has been a “significant deferral” in customers’ technology spending this year, adding that demand may pick up next year as companies buy new equipment. Yesterday, the company said its profitability may suffer this quarter because it’s paying more for parts.

Dell fell $1.05, or 8.1 percent, to $11.97 at 4 p.m. New York time on the Nasdaq Stock Market, the biggest drop since Jan. 29. The Round Rock, Texas-based company’s shares have gained 17 percent this year.

Shrinking Margins

Dell’s comment about capital sources “has some wondering if they are going to do a dilutive deal to raise funds,” Shannon Cross, an analyst at Cross Research in Livingston, New Jersey, said in an e-mail. The comments also “indicated that they will be pursuing acquisitions, which can be dilutive as well.”

In June, Dell sold $1 billion of three- and 10-year notes in its second debt offering this year. It said the proceeds will be used for general corporate purposes, which may include stock buybacks, acquisitions, investments, additions to working capital, capital expenditures and investments in subsidiaries.

“We’ve been able to very successfully -- and I think pretty favorably on a price basis -- raise some debt,” Michael Dell said today. “And if we feel we need more, we have a great credit rating and we will get it.”

Dell also said his company is planning a “portfolio of acquisitions.” It will do them “in a disciplined way” without rushing into purchases, he said.

‘Lumpy’ Market

Dell is also working on a plan to save $4 billion in annual costs by fiscal year 2011. The company is adjusting to a slump in information-technology spending, which Goldman Sachs Group Inc. expects to drop 8 percent this year.

“In 2009, there’s been a deferral of spending -- a pretty significant deferral -- which we think sets up for a pretty large refresh in 2010,” Michael Dell said. “The refresh will come first in storage and servers” and then in PCs.

Ron Garriques, president of Dell’s consumer business, described the market as “lumpy” and said the company’s next big challenge in increasing consumer sales is expanding in Europe. “The place we haven’t built out significant share position is in Europe.”

Dell is also seeking to expand partnerships with the top phone companies to sell PCs and related products to consumers and small businesses, Garriques said at the meeting.

Yesterday, the company said competitive pricing and the higher cost of components will cause a “modest decline” in second-quarter gross margin. Demand has stabilized and sales probably rose from the first quarter, it said.

Dell lost its lead in the PC market to Palo Alto, California-based Hewlett-Packard Co. in 2006, after Hewlett Packard used its retail network to reach more shoppers.

Since Michael Dell, 44, retook the CEO job two years ago, the company has redesigned its PCs to make them more stylish. Dell also forged partnerships with retailers, abandoning its policy of only selling directly to customers.

The company is rated A- by Standard & Poor’s, four levels above junk status. Moody’s Investors Service rates it A2, five levels above non-investment grade.

To contact the reporter on this story: Connie Guglielmo in Austin, Texas at cguglielmo1@bloomberg.net

Last Updated: July 14, 2009 16:10 EDT