In a meeting with analysts, Dell Inc., one of the largest personal computer makers remaining in the market, founder Michael Dell stated that the company would focus more on data center gear, cutting costs, and paying dividends starting this year.

Dell shifts focus on the data center

Dell is currently a seller of other vendors’ services and products, but they’ve mentioned at this week’s Dell Storage Forum that they are transitioning into becoming a true storage provider to address the high demand from their existing clients.  The company has been acquiring data storage makers, networking equipment and business software to diversify beyond PCs, and will continue to leverage these deals and acquisitions to boost revenue.

“We have a modest software business and that’s an area where we can grow rapidly,” Chief Executive Officer Michael Dell said, adding that he plans to work with partners rather than owning products in every category. “We’ve had some nice acquisitions which are off to a good start.”

Paying Dividends

After yesterday’s closing bell, Dell stated that it will start a quarterly dividend of 8 cents a share, giving a yield of about 2.7%.   It’s not a secret that Dell’s sales aren’t all that great, and the company hopes that paying dividends will somehow entice shareholders back into the mix and keep them from bailing on Dell.

“It’s been something investors have asked about for years now,” said Jayson Noland, an analyst at Robert W. Baird & Co. in San Francisco. “The reaction will be positive.

“You don’t typically see companies with free cash flow yields that high, and when you do, investors are saying, ‘We don’t think we’re ever going to see this free cash.’ ”

Dell generated $4.9 billion cash flow from operations from the past four quarters and they plan on returning 20-35% of free cash flow to their investors, higher than the previous projection of 10-30%.  “With the cash flows we’ve been generating, up 5 percent last year, we’re very happy to initiate this dividend and return more capital to shareholders,” Dell said in an interview.

Dell hasn’t issued a dividend in more than a year, and stocks have already risen significantly after the dividend announcement.  Stocks are priced at $12.44, a 3.91% increase.

Cost-Cutting Strategy

Dell is certainly feeling the pressure of competing with low-cost computers, and they’ve come up with a plan to reduce production costs to deliver cheaper hardware without sacrificing the quality of their products.

In order to cut $2 billion in costs, they will be following in HP’s footsteps: simplifying their product lines and consolidating its manufacturing operations to save $600 million, save $400 million by standardizing their service operations and some $800 million through consolidating sales support and consolidating and simplifying its marketing.  Dell’s also hoping to cut $200 million through centralizing its business and consolidating its own information technology platform for internal use.

Dell officials did not clarify whether their cost-cutting efforts would mean job cuts as well.  The company has over 110,000 employees worldwide with 6,600 specialized sales people that sell advanced products.

Below is further analysis of Michael Dell’s analyst call from theCube, broadcasting live from the Dell Storage Forum this week.

Co-authored by Mellisa Tollentino and Kristen Nicole