Dell Israel sees 100% growth by 2006

Dell Israel predicts that its sales will reach $112 million in 2004, compared with $75 million in 2003.

The Israeli branch of Dell Computer (Nasdaq: DELL) predicts that its sales will double from $75 million in 2003 to $150 million in 2006. The company predicts that its sales will grow 50% to $112 million this year.

Dell Israel did not state what its profit margins would be. Dell representative in Israel Ra'anan Biber said, however, that sales of the Israeli branch accounted for 10% of Dells total sales in the EDB region, which includes more than 70 countries in Eastern Europe, Africa, and the Middle East, and for more than 10% of its profit. Dells worldwide profit margin in 2003 was 6.3%, which would make its annual profit in Israel around $5 million.

The statement by Dell Israel matches the ambitious announcement by Dell founder, chairman, and CEO Michael Dell, who said that company sales would grow from $41.5 billion in 2003 to $62 billion in 2006.

In order to meet this aggressive target, the company entered the printer field, dominated by Dell rival Hewlett-Packard (NYSE: HPQ), a year ago, has also begun marketing videos, TFT television sets, and is focusing on foreign markets. At the same time, Dell is also starting to zero in on services, initially in five key countries.

Founded in 2000, Dell Israels core business is the sale of mobile and stationary computers, which account for 60% of its sales. The sale of servers accounts for a further 20%. Dell operates in Israel through six major distributors: Bynet Datacommunications, Omnitech-Echut, Galaxy Computers & Advance Tech, Eldor, and Getronics Israel. Dell products sold in Israel are made in the companys factory in Ireland. The company says that it tripled its business in 2000-2003, despite the collapse of one of its main distributors last year.

A year ago, Holon-based Unitec Technologies, which handled 50,000 items sold by Dell in Israel, collapsed. According to figures from the Registrar of Companies, RS (80%) and Israel Discount Bank (TASE: DSCT) (20%) owned Unitec, which had large debts to Bank Leumi (TASE: LUMI) and First International Bank of Israel (TASE: FTIN1; FTIN5). Biber says that Unitecs collapse was a severe blow to Dell Israel, and significantly reduced its sales of mobile computers in early 2003 to only 400 units, compared with 4,200 in the fourth quarter of the year.

Dell replaced Unitec with Omnitech-Echut, which handles small and medium-sized companies. Dell is about to add Team Computers and Systems (TASE: TEAM) as a seventh distributor. Prices are very significant in the choice of tenders, but through our distributors, we have managed to win contracts where we were formerly unsuccessful. Biber says.

According to Biber, the company is assigning each of its distributors to a different field, in order to prevent excess distribution. In the future, however, Dell Israel may consider adding more distributors, according to market demand. Dell Israel will probably add distributors for the military, telecommunications, and banking fields, in which its coverage is not as extensive.

Dell Israel has only five employees, and the company plans to add only another five. How can five people sell $75 million a year - $15 million per employee? There is no special trick. The employees in Israel handle only matter requiring specifically local intervention, while all logistics, marketing, processing of orders, and support is handled by the EDB center in the UK.

Biber admits that Dell Israel has room for improvement in its branding in competing with IBM (NYSE: IBM) and Hewlett-Packard. Our branding situation is better in developed countries, but keep in mind that the Israeli branch was only opened in 2000, he explains.

At a press conference today, Dell Israel presented a series of new products it plans to market, including printers, flat screen television sets, and all-purpose devices, which can scan, print, send and receive faxes, and make photocopies.

Dell has been selling printers in the US for over a year, using mostly technology from other companies. Biber says that Dell has sold two million printers in this period, a fifth of the number sold by HP, which still dominates this market.

Dell says that its added value in this field is a 50-64% saving on ink for printers. The company claims that most inkjet cartridges are half empty, and 50% more ink can be added to the cartridge. What about pricing? Dell plans to pull the rug out from under Hewlett-Packard by offering competitive prices for printers, without charging more for inkjet cartridges containing twice as much ink. Biber says that the initial focus will be on the home market, and he expects printers to be sold in stores within a month or two.

Why is Dell so eager to barge in on Hewlett-Packards traditional fief? Biber explains that out of Hewlett-Packards $73 billion in revenue last year, over $22 billion came from sales of its HP Imaging and Printing Groups products (ink, toner, etc.), and this was its most profitable field. It is therefore no wonder that Dell is so desirous of pulling the rug out from under Hewlett-Packard.

Published by Globes [online] - - on June 10, 2004

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