Dell’s Profit Plunges 47 Percent

on Nov 16, 2012

Dell (NASDAQ:DELL), the world’s third largest PC maker, reported revenues and profits below Wall Street’s expectations due to falling demand and a shift to mobile devices.

**Third Quarter Results**
The Texas-based company reported revenue in the third quarter of $13.7 billion (£8.64 billion) or 11 percent lower year-on-year as desktop and mobility revenue contracted. The company fell short of analysts’ forecast of $13.9 billion (£8.76 billion).
GAAP earnings per share in the last quarter was 27 cents, down 45 percent from the previous year. In its financial results report Dell warned that it “sees the challenging global macroeconomic environment continuing in the fourth quarter.” CFO Brian Gladden said in an interview that corporate customers continue to defer technology spending. “It’s not clear what’s going to cause them to increase their spending in the short term, given the uncertainty in the economy.” he said.

**Ahead of Windows 8**
Worldwide sales of PCs slowed down ahead of Windows 8 October 26 launch and Dell believes the release of the newest Microsoft operating system will help the company in the long run. “We’re also encouraged by early interest in our new Windows 8 touch portfolio and the opportunities it creates for our commercial and consumer businesses. ” said Mr Gladden. According to him however Windows 8 will not affect Dell’s results in the next two quarters as corporate customers aren’t rushing to upgrade their systems.

!m[](/uploads/story/832/thumbs/pic1_inline.png)Dell’s PC shipments plunged 14 percent year-on-year as Asian rivals Lenovo and Asus gained ground. According to the Financial Times, the American PC maker has become sandwiched between lower-cost products of Asian manufacturers and smartphones and tablets from Google and Apple. “Industry growth in this space continues to occur predominantly in the low value and entry-level desktop [PCs] and notebooks, where we’ve chosen not to participate, and in tablets,” Steve Felice, chief commercial officer, told analysts at the post-results conference call.

**Shifting Away From PC Sales**
Michael Dell, chief executive, has been trying to reduce Dell’s dependence on PC sales by focusing on its business products. Revenues from the servers and networks product groups rose 11 percent year-on-year to $2.32 billion (£1.46 billion), boosted by strong demand for Dell’s PowerEdge servers, new machines with the ability to attach to faster network connections. Compound these results, sales of servers designed for the increasingly popular cloud-computing applications increased by 126 percent from last year. “There are some parts of the business that are actually doing well,” Mr Dell said. Despite the efforts to rebalance its income streams, the slumping PC business still makes up nearly half of the PC maker’s revenue base.

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Dell’s shares have plunged nearly 35 percent since January and have earned a place among the group of worst performing tech stocks. In afterhours trading the stock fell an additional 1.88 percent to $9.38.
News agency Bloomberg quoted Topeka Capital Markets analyst Brian White who wrote to clients on Wednesday that Dell’s operating profit, which declined 31 percent in the last quarter, may have “bottomed”, meaning the stock could actually be a good investment at its current price. “The stock has limited downside from current levels as we expect value investors will be attracted,” wrote White, who recommends buying the shares.

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