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Dell looks for profits in lending

Dell looks for profits in lending

Dell Inc. will buy out its partner in the company's lending division so it can lend customers more money to buy PCs.

In an effort to rebound from disappointing results in its first quarter earnings, Dell will begin to act more as a bank, lending customers money so they can afford to buy more PCs.

Dell already has a lending arm; the company founded Dell Financial Services (DFS) in 1997, as a joint venture with CIT Group, a New York-based lender. Together, they have lent $US28 billion in credit, loans and leases to both commercial and consumer customers.

Now Dell will accelerate its plans to buy out CIT and take charge of the business entirely, its chief financial officer, Jim Schneider, said.

CIT now offers 65 per cent of the cash needed for those loans, but Dell began to increase its share in 2005 and will buy out CIT entirely by 2010.

The decision will both increase Dell's ability to attract new customers and also earn the company money on interest fees.

"We're trying to offer financing to customers who otherwise might not be able to buy from us or afford the product," Schneider said.

"There's a much better return on those financing assets than we could achieve otherwise through investments with our cash."

The business has grown from lending nearly $US3 billion in Fiscal Year 2002 to a forecasted $7 billion in 2006.

That represents 20 per cent to 25 per cent of Dell's sales, an average that includes many more consumer customers using the service than commercial customers. Dell plans to expand the business both by increasing that percentage and by extending the service overseas.

Since it announced a slump in quarterly profits in May, Dell has taken several steps to reassure investors that it would arrest its slide in market share to HP and other competitors.

The company has begun to spend $US100 million to improve its customer service by hiring more call centre workers and launching a service to provide technical support via broadband Internet links.


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