Dell falls as sales miss target on PC slump
Friday November 20 2009
Dell, after losing its second-place ranking in the global personal-computer market last quarter, fell in Nasdaq trading after reporting earnings that missed analysts’ estimates.
The company reported yesterday a 54pc drop in third-quarter net income to $337m (€226m), or 17 cents a share, as sales slid 15pc to $12.9bn. Analysts on average predicted profit of 27 cents and sales of $13.1bn.
Chief Executive Officer Michael Dell is focused on lifting profit, even as that means yielding market share to rivals. Dell fell behind Hewlett-Packard and Acer after holding the No. 2 spot since 2006.
Dell attributed the drop to a PC market fueled by consumers, who account for just 20pc of revenue. The company is counting on a revival in business spending in coming months to resuscitate sales.
“Dell remains a transition story,” said Shaw Wu, an analyst at Kaufman Bros. in San Francisco, who rates the shares “hold.” “The conclusion here is that it looks like they are losing share more than expected, even though there was some expectation of that already.”
Dell, based in Round Rock, Texas, fell as much as 8.5pc to $14.52 in late trading yesterday after dropping 19 cents to $15.87 on the Nasdaq Stock Market. The shares have gained 55pc this year.
Profitability measure
Gross margin, the percentage of sales remaining after production costs, was 17.3pc, missing the 18.6pc Wu anticipated. D
ell had $102m in expenses for “organizational effectiveness actions,” including the October decision to close a desktop PC factory in North Carolina, Chief Financial Officer Brian Gladden said.
Prices for memory and liquid-crystal displays also weighed on profit margins, he said.
The company will continue to put profit before market share and last quarter walked away from some consumer retail deals because “the margins weren’t acceptable for us,” Gladden said.
Shipments at both Hewlett-Packard and Acer rose last quarter, according to IDC. Dell’s PC shipments fell 8.4pc, compared with a 17.1pc drop in the second quarter, the research firm said.
Dell said it expects fourth-quarter revenue to improve over the third quarter, spurred in part by a pickup in consumer demand in the holiday shopping season.
Orders from business customers have been rising steadily over the past few months and are expected to continue this quarter, the company said.
Acquisitions
Since returning as CEO in January 2007, Dell has made 10 acquisitions, cut more than 10,000 jobs and outsourced 43pc of production under a plan to save $4bn annually. He also entered the smart-phone market in China and Brazil and intends to offer the devices in the US next year.
The goal is to reduce the company’s reliance on PCs, which account for about 60pc of revenue. Dell wants to boost sales of products and services that carry higher profit margins.
With this month’s $3.9bn takeover of Perot Systems, Dell’s most expensive purchase, the company is looking to win services customers from market leaders International Business Machines and Hewlett-Packard.
Perot, which gets about half of its sales from health-care customers, stands to benefit from $20bn in US stimulus funds going to information technology in that industry.
As for future acquisitions, Dell said he plans to pursue companies that are smaller than Perot.
Dell said today he still expects corporate buyers to embark on a “powerful upgrade cycle” of PCs and other computer systems sometime in 2010. Instead of a burst of sales, he predicts that cycle will be spread over 18 months.
Microsoft’s Windows 7 operating system, introduced last month, also may help fuel purchases because many business customers didn’t adopt the previous Windows Vista program.
“These IT managers know they can’t extend the life of these clients forever,” Dell said. “What we remind them is that Windows XP is eight years old, and so, yeah, I think it’s going to be a pretty powerful cycle.”
- Connie Guglielmo
© Bloomberg
