Michael Dell sticks to Windows 7 big bang theory

Dell chief Michael Dell is projecting a Windows 7 upgrade cycle that could put PC growth "well into the teens." What's unclear is whether Dell will be able to grab a bigger share of the revenue pie or be outmaneuvered by rivals like HP and Acer.

Following the company's disappointing quarter, Dell executives said the timing of the Windows 7 launch hurt revenue and earnings. That's why Dell's third quarter results fell short of expectations.

On a conference call, Dell executives sounded upbeat about the fourth quarter and the fiscal year to come.

When asked about the potential for a PC replacement cycle that would be above the 10 percent growth rate usually expected, Michael Dell said:

I would not be surprised to see it well into the teens. I think there is an aging installed base for sure. You just have an accumulation of new technologies at the hardware, software, virtualized client and these IT managers really know they cannot extend the life of these client assets forever. While I don’t think it is all going to occur at once, I think it will be a rolling refresh that occurs over perhaps 18 months, I can’t remember a time when a very high percentage of them skipped an entire operating system. So what we remind them, and they know this, Windows XP is eight years old. So yes I think it is going to be a pretty possible cycle.

Next question was about the corporate upgrade cycle and Dell's market share. Will Dell go for the earnings or the market share?

We think we are holding or gaining share in the right kind of price points. Our efforts on the cost side should expand our ability to profitably compete in a larger portion of the price points. What I would also tell you is that the pipeline of client opportunities we are already seeing more client activity in the last 30-60 days than we have in a long time and the pipeline for client activity kind of going forward into next year is the strongest it has been in a long time as well. So if I look at our commercial businesses the second quarter was kind of a bottom. The third quarter was certainly better. October was the best and November will be better than October. So the length of the turn is good.

Analysts seem to buy Dell's vision for the PC market pop, but question whether the company will hang with the competition. Barclay Capital analyst Ben Reitzes wrote in a research note:

We believe this earnings report will raise some concerns with investors, given Dell’s revenue trends are tracking well behind competitors in PC’s and even storage. Also, the quarter demonstrates significant margin volatility despite a $4 billion plus cost savings program. We continue to have long-term business model concerns for Dell but we do acknowledge that the company has a large exposure to corporate PCs which should see a pick-up in mid to late 2010. We continue to prefer HP and Apple for PC exposure (and) gaining share.