M+E Connections

Dell, Sirius XM Execs Tout Growth Opportunities at Deutsche Bank Conference

Despite challenges, there are still growth opportunities ahead for Dell Technologies and Sirius XM Radio, executives from the companies said at the Deutsche Bank Leveraged Finance Conference in Scottsdale, Ariz., Sept. 27.

Dell Technologies is focusing on three separate sales organizations after the recent merger of Dell and EMC Corp., CFO Tom Sweet said at the conference. Those organizations are enterprise sales, commercial sales, and consumer/small business, he said.

“We like the PC business” and “it’s clearly an important element of our capability,” Sweet went on to say. “We think it’s a great market,” he said, but conceded: “It’s a tough market, it’s a challenging market, it’s a cyclical market.” Citing Gartner and IDC projections, he predicted that, “over the long run,” the PC business “sort of settles out into a sort of low negative growth to low single [digit] type numbers” business. One major issue that is appealing to Dell is “vendor consolidation” among PC makers, he said, pointing to “weaker players” that we have seen “drop by the wayside” in recent years.

The global installed PC market is about 1.8 billion devices now, and about 600 million of those are more than four years old, he said. As a result, he said: “There is a refresh cycle that will happen, and we want to be poised to take advantage of that refresh cycle.” It is, however, very difficult to gauge exactly when that refresh cycle will start, he said, adding Dell has gained market share in 14 straight quarters.

The “profit pool” for PCs is in the commercial PC market and that’s a good thing for Dell because about 70% of its PC business is commercial and only 30% consumer, he said.

Sirius Looks for More

Sirius XM, meanwhile, has more than 30 million subscribers now. But “there are about 90 million vehicles on the road today,” and that’s expected to grow to 185 million over the next 10 years, CFO David Frear said at the conference. Therefore, there is the potential to convert many more consumers into satellite radio subscribers.

The company’s “marketing opportunities are going to continue to expand with the natural turnover in cars,” Frear said. Sirius XM is running about 20 million satellite radio service trials this year off of vehicle sales — about 12 million of them new cars and 8 million used cars, he said. The company expects its penetration rate among new vehicles sold to continue being about 12 million each year, he said. But he added that the “used car opportunity is only just beginning” and Sirius XM expects to see used car distribution growth for another 15 years.

Sirius XM’s business has “become less and less dependent on new car sales as each year has gone by,” he said. By the end of this year, conversions from new car sales will represent less than 50% of the company’s total subscription additions and will “continue to work its way down,” he predicted. So, if there is a decline in new car sales sometime over the next few years, “I think we’ll find some of the impact to be smoothed out by the continued growth in used car turnover,” he said.

The company added 587,000 net new subscribers in the second quarter of 2016, increasing total subscribers to more than 30.6 million, an increase of 8% from 28.4 million at the end of the second quarter of 2015, it said in July. Sirius XM now expects to add 1.6 million net new self-pay subscribers and 1.7 million total net new subscribers in 2016, an increase from its prior forecast of 1.4 million and 1.6 million, respectively.

Sirius XM’s service is available at least as an option for consumers in about 75% of the cars on the road, and the company is not looking to spend much of an effort to significantly increase that number, Frear said. That percentage may dip a bit down or inch a bit up based on the features that car makers opt to include in entry-level vehicles at any given time, he said. But “at some point in time it could make sense for auto makers to just put it in all the cars,” he said.

“We worry a lot about the price increases” that Sirius XM implements, but its churn rate has remained relatively low regardless, he said. There is, however, higher churn when it does increase prices, he said. What likely helps offset that is it typically doesn’t change pricing across all of its plans at any given time, he said.

Frear also said he sees little reason to be concerned about connected cars having a major impact on Sirius XM’s business. Any impact from that has probably already happened, he said, pointing to the huge number of car owners with smartphones, which are the main devices used for streaming in cars.