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Dell talks strategy

Globe and Mail Update

Nine months after Dell Inc. chief executive officer Michael Dell announced plans for the computer maker to expand beyond its Internet and telephone direct-selling model, analysts are eager to see the evidence indicating that his gamble is paying off.

Following a year where Dell ceded its crown as the world's largest computer manufacturer to Hewlett-Packard Co., announced it was laying off 10 per cent of its work force and was forced to restate four years of financial results, it appears the company can now see the beginnings of the light at the end of the tunnel.

"A year ago they had no buzz, but now they have something happening," Info-Tech Research Group senior analyst Michelle Warren said. "Of course, the question is: How are they doing compared to HP? And that's where we have to wait for the earnings."

When Dell started selling computers through retail chains such as Wal-Mart Stores Inc. and Best Buy Co. Inc. last year, the move was designed to halt the company's declining market share and falling sales. Last month, tracking firm Gartner Inc. announced that Dell's worldwide PC shipments grew 17 per cent in the final quarter of 2007 over the same period in 2006.

Although Dell's share of the overall market fell to 14.5 per cent for the year - trailing HP's 18.2 per cent - it was the second consecutive quarter the company had achieved year-over-year growth and was the first definitive sign that the computer maker was turning things around.

Those numbers, combined with Dell's continued advancement into the retail space, should lead to a strong showing when the company releases its fourth quarter financial results after the markets close today, Pacific Crest Securities analyst Brent Bracelin said.

"We feel it better positions the company for incremental growth and helps strengthen their turnaround," he said. "We expect these new retail partners to help drive the highest growth rate for Dell that the company has reported in two years."

Dell's stock has lost nearly a third of its value since October as the technology sector in the U.S. continues to reel amid recession fears.

During an appearance at the University of Toronto yesterday, Mr. Dell said that although the computer company still generates about 85 per cent of its revenues from the business world, the consumer market offers a better opportunity for fast gains.

"Where we have more opportunity is actually in the place where customers are more fickle and switch more easily, and I actually see that as an upside," he said.

As technological innovation in laptops has slowed, the differences from one generation of computers to the next is less significant today than it was five years ago, forcing computer companies to differentiate based on style and design, he said.

"I think it's a natural evolution of where the industry is," he said. "More buyers are saying: 'I want the pink one'."

Also yesterday, Dell Canada Inc. announced it would begin selling computers in Staples Business Depot stores in Canada under an arrangement similar to the one the two companies signed last fall in the U.S.

There was no mention of the thousands of lost call centre jobs in Ottawa and Edmonton during Mr. Dell's visit. Reporters attending the event were not allowed to ask questions.

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