By delaying meeting Wall Street analysts, the PC maker has bought time to address its grim sales forecast, writes Kevin Allison in San Francisco

Dell's decision last week to delay a scheduled April meeting with Wall Street analysts was greeted more with relief than apprehension by investors.

After missing sales forecasts in two successive quarters, the biggest PC maker in the US last month beat expectations on revenues but issued what many considered a bleak sales forecast for the coming quarter. This has led some analysts to question whether the company's business model is still on track.

"One of the most notable characteristics associated with Dell in the past has been its consistency," wrote Laura Conigliaro, an analyst at Goldman Sachs, in a recent research note.

"Today, in the midst of its business model adjustments, we have seen growing numbers of inconsistencies in Dell's results, making it difficult to assess what the new patterns might ultimately turn out to be."

Postponing its analyst meeting until September should give chief executive Kevin Rollins time to better assess the challenges Dell faces as it tries to increase annual revenues by a third, from $60 billion (€50.3 billion) to $80 billion.

For investors, some clarity would be a welcome development. Dell's shares, once considered a "must-own" on Wall Street, have been hammered in recent months by weak sales growth and high expectations. They ended last week at $29.10, down from a recent high of $41.99 in July.

For more than two decades, Dell's direct business model, which bypasses retailers to sell computers directly to customers over the internet or telephone, has allowed the group to grow more quickly and more profitably than its rivals.

Over the past nine months, however, that has begun to change.

Dell now expects revenues to grow between 6 and 9 per cent year-on-year in the next quarter - a far cry from its typical growth rate of closer to 20 per cent and nearer that of rivals such as Hewlett-Packard.

Dell's overseas and US government businesses saw healthy growth in the last quarter, but the US consumer business lagged, with revenues up just 1 per cent.

As Dell tries to ratchet up revenue, prices are being dragged down by low-cost Asian producers and US rivals willing to sell at lower margins to grab market share.

In the previous two quarters, Rollins said, pricing mistakes had led the company to miss its sales targets.

Dell managed to achieve its more conservative targets in the fourth quarter, but only by sacrificing on margins.

In the last quarter, Dell's operating margin - a chief measure of the profitability of a company's core business model - was flat at 8.2 per cent, excluding special items, down from the group's historical target of about 9 per cent. And for a company that took in more than $55 billion in revenues last year, those percentage points make a big difference.

For Dell's management team, all this hand-wringing must be somewhat frustrating. Dell's growth rate is, after all, still among the best in the PC industry, a fact Rollins alluded to in the company's earnings call.

"We look at the most recent quarter and we grew 13 per cent and our competitors grew about 5.6 [ per cent]," he said.

In an effort to better manage high expectations, Dell has begun to back away from the initial target of increasing annual revenues to $80 billion by 2009.

Taking action to address Dell's pace of innovation could go a long way towards assuaging investor concerns. Some customers want it to start shipping computers that contain (Advanced Micro Devices) AMD microchips, as opposed to those currently supplied by Intel.

Many industry watchers expect Dell to decide on the AMD chips this year, but Rollins declined, in this month's earnings call, to discuss any plans to go with AMD.

Yesterday, the company announced two "dual-core" laptop computers, offering both home-office and multi-media/entertainment capabilities.

Meanwhile, Dell is undergoing a dramatic transformation when it comes to global sales. Sales in Europe and Asia grew 18 per cent and 21 per cent last quarter, respectively - about twice the growth rate of Dell's core US market.

Dell is one of Ireland's largest IT employers, with a total of 5,000 people at locations in Limerick, Wicklow and Dublin. The Republic accounts for 40 per cent of the group's employees in Europe, the Middle East and Africa.

Founder Michael Dell has described Ireland as "the heart of Dell's European operations".

The Limerick manufacturing facility is one of just six such plants worldwide.

But investors and executives will be closely watching as Dell adjusts to its new market realities between now and September's meeting with Wall Street analysts.