Dell Inc., which initiated its first dividend yesterday, willuse acquisitions to add products for corporate customers and curbreliance on personal computers, a business battered by competitionfrom smartphones and tablets.

The world's third-largest PC maker plans to boost revenue fromdata-center products and technology services 45 percent to $27.5billion by fiscal 2016, Dell said at a meeting with analysts todayin Austin, Texas. Over that four-year period, PC-related revenuewill climb 8.3 percent to $47 billion.

Dell's 8-cent-a-share quarterly dividend may help retain currentshareholders and lure institutional investors as the company worksto revive sales. Chief Executive Officer Michael Dell has beenacquiring makers of data storage, networking equipment and businesssoftware to diversify beyond PCs and will continue to use deals toboost revenue.

“The new dividend will keep investors satisfied during thistransition period,” said Brian White, an analyst at Topeka CapitalMarkets in New York, in a research report today. He upgraded Dellto buy from hold and raised his price estimate to $15.75 from$13.50. “Dell's strategy in the enterprise market is moving towardgreater focus.”

The shares rose 3.8 percent to $12.42 at 2:03 p.m. in New York.The stock had dropped 18 percent this year through yesterday.

“We've had some nice acquisitions which are off to a goodstart,” CEO Dell said. “We have a modest software business andthat's an area where we can grow rapidly.”

The company has acquired software vendors including data-backupmaker AppAssure and network-security company SonicWall Inc. thisyear. Terms of the purchases weren't disclosed.

Dell will focus on data-center gear as well as computingsoftware and services while seeking to cut costs by more than $2billion over the next three years, the company said. Costs can betrimmed from the supply chain and sales support.

“As you think about our industry it's constantly in transition,”Dell said at the meeting. “We're focusing on a couple of keyareas.”

PC sales, while tepid, still help boost sales of software,accessories and services. President Jeff Clarke said there's $3.5billion of new sales opportunity in tablets, accessories anddesktop virtualization software by fiscal 2013.

Windows Tablets

Tablets running Microsoft Corp.'s Windows 8 operating system mayadd $1 billion in sales over the next four years. Dell's salesprojection for the PC and device business assumes no growth intraditional desktops and laptops the next four years, Clarkesaid.

The dividend declaration came after past board proposals toreturn more cash to shareholders. A shareholder proposal for adividend was defeated at the company's annual meeting lastJuly.

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

Dell may generate $2.25 a share in free cash flow this year, orabout 19 percent of its market value, according to Noland, who hasa neutral rating on the shares.

“You don't typically see companies with free cash flow yieldsthat high, and when you do, investors are saying, 'We don't thinkwe're ever going to see this free cash,' ” he said.

The company ended the fiscal first quarter with $17.2 billion incash and investments, Chief Financial Officer Brian Gladden said ona conference call last month.

Dell follows other large technology companies in starting orincreasing dividends after amassing cash previously earmarked forresearch, development and acquisitions.

Apple, the world's largest company by market value, in Marchsaid it would pay its first dividend in 17 years, heeding investorswho urged it to return part of its cash hoard. Microsoft, thebiggest software maker, in 2003 acceded to shareholders' demandsfor a cash return by paying its first dividend. It raised thepayout by 25 percent last year.

Through the dividend and stock buybacks, Dell said it plans toreturn 20 percent to 35 percent of free cash flow to investors, upfrom a prior projection of 10 percent to 30 percent. Over the pastfour quarters, Dell has generated $4.9 billion in cash flow fromoperations, the company said.

The board has periodically considered paying a dividend, and thecompany plans to continue its share repurchase program, said DavidFrink, a Dell spokesman.

Smartphones, Tablets

As smartphones and tablets siphon sales from PC makers, Dell'ssales growth has slowed, with revenue rising just 1 percent infiscal 2012. The company lost share in the global PC market in thefirst three months of the year, and it now trails Hewlett-PackardCo. and Lenovo, according to market researcher Gartner Inc. Dell isexpanding in enterprise technology to offer corporations a broaderlineup of products and services to run technology operations.

Dell's dividend yield is 2.7 percent, according to data compiledby Bloomberg. Hewlett-Packard's yield is 2.4 percent, whileLenovo's is 1.9 percent.

In February, Dell projected fiscal 2013 earnings excluding someitems of at least $2.13 a share. The company in May said revenuefor the quarter ending in July would be $14.7 billion to $15billion.

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