Windows 8 Launch, Microsoft Surface: Michael Dell’s Spin
What are Michael Dell’s expectations for Windows 8 PCs, ultrabooks and tablets? And can Dell (NASDAQ: DELL) differentiate from Microsoft Surface tablets? Dell’s CEO and CFO offered insights this evening during an earnings call with Wall Street analysts. Here’s the recap.
Even before it arrives, Windows 8 is impacting Dell’s business. Dell CFO and Senior VP Brian T. Gladden mentioned: “In the quarter, we saw the channel drawing down inventory in anticipation of the Windows 8 launch. We also continued to see discretionary spending directed to alternative mobile devices like tablets and smartphones.”
Windows 8 Ultrabooks
Later in the call, Morgan Stanley Analyst Kathryn Huberty asked whether Windows 8 ultrabooks and tablets can restore PC market growth.
Gladden’s reply suggested Windows 8’s initial success will be in the consumer market, with commercial Windows 8 business sales taking a bit longer to kick in. Gladden said:
“Look, I think we are bullish about the products that we have coming aligned with the Windows 8 launch. I think as you know, our mix of business tends to be more on the commercial side, so there might be a little bit more delay in terms of that having an impact for us as it sort of works its way through the Consumer side of the business. But we would expect, as you head into next year, seeing a bit of a benefit clearly if that works its way through the system and we see those products in the marketplace.”
Dell vs Microsoft Surface Tablets
Later in the conversation, RBC Capital Markets’ Amit Daryanani asked if:
- Dell’s slowing PC sales were related to overall market weakness, or whether the slowdown was more closely associated with the channel drawdown ahead ahead of Windows 8.
- Plus, Daryanani pushed to know whether Dell could differentiate from Microsoft Surface tablets.
Here again, Dell’s Gladden weighed in before Michael Dell shared his perspectives.
“We began to see the channel began to push out and try and draw down inventory levels of Windows 7-based product as they move into the fall, which we would expect to be one of the key drivers moving into the third quarter for us.”
And on Microsoft Surface tablets, Dell still thinks it can differentiate from the software giant’s hardware. Said Gladden:
“As you think about Microsoft entering the space, clearly, as we think about it, we’ve spent time talking to Microsoft and understanding sort of how they’re thinking about it. There clearly are opportunities for us, as Windows 8 comes through, in having differentiated products. And I think at the same time they have announced the Surface product that would be in the space, we will have products in there, and I think you’ll see a diverse set of offerings that take advantage of what Windows 8 brings to market.”
Michael Dell’s Windows 8 Views
That’s when Gladden invited Michael Dell to jump into the conversation. And it sounded like Michael Dell has conservative expectations for Microsoft’s own Surface tablets, suggesting that they will capture 2 percent or less of the PC market. Here’s what he said:
“I think there’s been some understanding of the number of units that are likely — although it’s a relatively small percentage, maybe in the 1% to 2% range of the total PC units through the middle of next year, certainly with our business being more focused on commercial, centered around the Windows 7 transition, which is still very much under way, I’m feeling very good about the portfolio we have with OptiPlex, Latitude, Precision. The XPS product line is in good shape, and we’re ready for Windows 8.”
Translation: It sounds like Michael Dell and his company will have plenty of products ready for Windows 8. But Dell expects the first wave of Windows 8 sales to involve consumers — while Dell itself focuses far more heavily on the corporate market.
Note: You can find a complete transcript of the earnings call on SeekingAlpha.com.