Table: How Dell Plans to Turn Up Profits
For all Dell's runaway success in PCs, that game will never be hugely profitable again. To compensate, Dell knows it has to crank up share in more lucrative markets:
Some 80% of Dell's sales come from PCs and notebooks. If the price war doesn't let up and margins on Dell's PCs fall any lower than today's 3%, the company will need to boost its worldwide market share from the current 13% to 23% by 2003 just to keep earnings flat, say analysts.
Dell has launched a price war in the low end of this market, dropping its server margins from roughly 27% to 20% in the past 18 months. To better pad profits, Dell must beat the likes of Sun and IBM, who make high-end servers with 40%-plus margins.
Dell has only a 4.5% share since this segment requires huge R&D--not Dell's forte. Still, Dell is targeting storage because it's a $29 billion market, with 25% gross margins. For now, buyers want the tech smarts of IBM, EMC, and others.
Services is a $395 billion market that carries 20%-plus operating margins. It contributes just 10% of Dell's revenues now. Execs hope they can boost the business 30% a year. Dell's aim is to solve customer problems with easy, software solutions instead of armies of consultants.
Dell wants a piece of the $5 billion market for low-end networking gear used by small businesses. Dell's plan is to underprice rivals by some 50%, gaining share quickly. But given the smallish market size, this isn't a savior for Dell.