Dell struggles as Q3 profits drop by 47 per cent

News 16 Nov, 2012

Firm expects "challenging macroeconomic environment" to continue.

Dell's third-quarter profit slid 47 per cent, due to low PC sales, weaker demand from large corporations and the shift to mobile computing.

The firm's consumer PC business is struggling as more and more consumers are using smartphones and tablets to do basic computing, and the corporate customers continue to defer spending due to the uncertain state of the economy.

The No. 3 personal computer maker warned that it "sees the challenging global macroeconomic environment continuing in the fourth quarter".

The company, once the world's top PC maker and a pioneer in computer supply chain management, is struggling to defend its market share against Asian rivals like Lenovo. It is trying to bolster growth by focusing on products and services to corporations.

The company said it expects revenue to grow as much as 5 per cent in the current quarter.

"Our outlook for the quarter would be generally consistent with what we typically see in terms of a seasonal pickup," it said.

Dell said revenue in its fiscal third quarter fell 11 percent to $13.7 billion, slightly lower than the average analyst estimate of $13.89 billion according to Thomson Reuters I/B/E/S.

It posted net income of $475 million or 27 cents a share in the quarter, compared with $893 million or 49 cents a year earlier. Excluding certain items, it earned 39 cents a share, compared to an average forecast for 40 cents.

Chief Financial Officer Brian Gladden said in an interview that corporate customers continue to defer technology spending.

Guest editor's thoughts:

"If enterprises continue the move to the cloud and BYOD is the way forward, what is the future of the PC? Every new TV is connected to the internet and most people have a games console, tablet or smartphone. In the office, remote desktops and VDIs mean you can still use your five-year old pc to connect to the cloud. It would be interesting to understand how Dell views them as part of its product portfolio as the current macroeconomics don't seem to be the only reason for the decline in PC sales," says Liam Quinn, IT manager, Richmond Events.

"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.

Dell's enterprise solutions revenue rose 3 per cent to $4.8 billion, while server and networking revenue climbed 11 per cent. In contrast, consumer revenue plummeted 23 per cent to $2.5 billion, underscoring the plight of the broader PC market, and sales to large corporation declined 8 per cent to $4.2 billion in the quarter.

Dell's "challenges are frankly the same as before - namely the tough macroeconomic environment and cannibalization from mobile devices using mobile operating systems from Apple and Google," Shaw Wu, analyst with Sterne Agee, said.

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