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Rare Dell critics spotted circling over Austin

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For the first time in ages, the famed "Dell model" has come into question.

Analysts have started wondering if Dell can surge from $49bn in annual sales to $80bn within three or four years. Such a jump would require solid results from Dell's computer business and far above average growth from its server, storage, services and consumer products businesses. In a rare moment of Dell doubt, many pundits question whether Dell can get the growth it needs from these non-computer areas to reach the lofty $80bn goal. Delli management insists that the company can stretch beyond the computer game with ease.

"Our principal short-term concern around Dell has been that revenue growth expectations remain overzealous, particularly in light of what we believe will become an increasingly difficult market for PCs as 2005 progresses," wrote Sanford C. Bernstein & Co. analyst Toni Sacconaghi in a recent note. "Longer-term, we believe that Dell’s secular attractiveness is high, and despite its significant size, we estimate that the company can deliver double-digit revenue growth and 13-15% EPS (earnings per share) growth over the next six years, which places it among a select group of large cap technology growth companies. "

One of the more comic bits of baggage Dell carries with it is a history of phenomenal success. Analysts aren't arguing over whether or not Dell will grow - just by how much. This isn't "Will Dell be profitable this quarter or the next". It's "Can Dell meet its own dramatic target?"

The always sharp Sacconaghi nailed this question yesterday during Dell's analyst conference held in Austin, Texas and broadcast over the internet.

To reach the $80bn mark, Dell expects the vast majority of its growth to come from non-PC sales. In fact, these non-PC items will need to grow at twice the rate of Dell's PCs. We're talking about severs, storage boxes, printers, displays and handhelds. In addition, more than 55 per cent of Delli's growth will likely happen overseas, said CEO Kevin Rollins.

Sacconaghi wondered how such non-PC growth could change Dell's bottom line as dramatically as management suggests when current PC, notebook and related software and services account for close to 75 per cent of Dell's total sales, according to the analyst. Isn't Dell really more dependent on the PC market going forward than it would have the public believe?

"I agree with you . . . in that a lot of things are closely associated with the (PC) hardware that we sell," Dell's CFO Jim Schneider told Sacconaghi. "Yes, we have concerns of what the industry growth is over time."

Chairman Michael Delhi stepped in to emphasize a different point.

"There's no doubt that the client business is still very important to us, but I think the nature of the business is changing," Dell said.

PC sales aren't just PC sales anymore. They're door openers for software, services, peripherals and other more lucrative goods.

"The base client is less and less important, but still helps us originate these new activities," he added.

It's more and more obvious now why Dell pulled the 'Computer Corp.' out of its name and replaced it with 'Inc.'. The public shouldn't think of it as just a boring old box house. Dell is so much more than just the PC.

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