You've seen the Apple (Nasdaq: AAPL) iPad and you know that tablet computers are the Next Big Thing(tm). But how do you invest in the revolution? Will Apple win or get crushed by Google (Nasdaq: GOOG) Androids and Hewlett-Packard (NYSE: HPQ) tablets? Will Qualcomm Snapdragon chips conquer all, or drown in a flood of Intel Atoms? So many choices, so little conviction!
Well, Michael Dell has another idea about tablet computing. Dell (Nasdaq: DELL) certainly plans to sell a few tablets of its own, powered by Android and Microsoft (Nasdaq: MSFT) Windows Mobile 7 alike. But put a gun to his head, and he'll tell you that the real action is in server systems. So even if the iPad does conquer all, Dell has a back-up plan for cashing in on this trend.
Wait, what?
Dell doesn't expect you to stick a big-iron server in your pocket, but he does suggest that the new usage patterns a tablet computer inspires will need much more support from data centers around the world.
When every service is hosted in the cloud and meant to be viewed on lightweight, low-powered tablets, it's up to the service providers to do the heavy lifting. And so he sees increasing demand for muscular processing power, endless storage systems, and fatter networking pipes -- all based on tablets taking off into the stratosphere.
Here's the pudding
We're in the very early days of this industry makeover, but Dell already benefits from big corporate customers building out their infrastructure. Dell's first-quarter sales came in at $14.9 billion, up 21% from the year-ago period and led by a 39% increase in server sales. Net margins expanded from 2.3% to 3%, partly thanks to that richer product mix, and earnings took a 47% leap to $0.22 per share.
Some of that marked improvement can be pinned on the tablet and smartphone tsunami, but a much-needed refresh of aging systems also helps. Less than 5% of enterprise-class Windows servers today run Windows 7 and Office 2010, by Dell's estimation, leaving an enormous landscape of untapped opportunity ahead.
Will the tablet craze be the catalyst that conjures up those corporate checkbooks at last? Michael Dell thinks so, and I think he's onto something. But what do you think, dear Fool? Can tablets create growth opportunities for not only the Apples of the world, but also the HPs and Dells, all for different reasons? Share your wisdom in the comments box below.
