Dell's blade-server challenges remain a footnote in the short term to the company's ability to effectively manage its supply chain and costs. Dell said Wednesday that it will beat earlier predictions for first-quarter sales by $200 million. It projects quarterly revenue of $11.4 billion, up 20% from the same quarter a year ago.
"We're still seeing declines in overall commodity costs," senior VP and CFO Jim Schneider said Thursday at the conference. "This is one of the competitive advantages that Dell continues to have." Schneider pointed out that Dell has been able to lower the cost of materials by cutting down on 30% of the parts used across its product lines.
Dell is able to cut spending on materials by having different server and PC models share the same chassis and by excluding high-cost components during the product design phase. "We don't control the component manufacturing industry," president and chief operating officer Kevin Rollins said. "We're just better at managing it than others. Dell shrinks the profit pie for all vendors and takes the largest piece." Dell has done this with PCs and servers over time and now has its sights set on storage and printers. While a storage area network installation cost $17,000 a few years ago, it now costs $9,000, Rollins said.
This ability to cut costs helped Dell finish fiscal 2004 with $11.9 billion in cash and investments. Dell used a portion of this reserve to buy back 63 million shares of stock in fiscal 2004. The company this year plans to invest $600 million per quarter to continue buying back its stock. Financial analysts see the stock buyback program as a good investment--as long as the company can continue to increase market share and profits.
Michael Dell continues to hold his $40 billion company's size and performance up to the $800 billion overall market for IT products and services. Dell said he sees another $40 billion in profit opportunities in peripherals, printers, services, software, and storage outside the company's core PC market.
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