Dell Profit Dives on Lingering Low PC Demand
May 29th, 2009 by admin
Dell’s Q1 earnings report was dismal, but that was no surprise to analysts, who had expected earnings of a penny per share less than the company actually realized, excluding charges. The company didn’t offer much hope for a fast rebound, with CFO Brian Gladden seeing “mixed signals” for the road ahead.
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Dell (Nasdaq: DELL) said Thursday its fiscal first-quarter profit fell 63 percent as the recession continued to crimp computer sales around the world.
The results, coupled with a cautious outlook from the world’s top PC seller, HP (NYSE: HPQ) , indicate that the computer market has not improved much since last year’s economic meltdown led to a holiday season that was the industry’s worst stretch in six years.
Dell’s earnings for the three months that ended May 1 sank to US$290 million, or 15 cents per share, from $784 million, or 38 cents per share, in the same period last year.
The most recent results included a 9-cent charge from closing facilities and paying severance to laid-off workers. Excluding the charge, Dell earned 24 cents per share, or a penny better than analysts had predicted, according to a Thomson Reuters survey.
Sales dropped 23 percent to $12.3 billion, lower than the $12.6 billion analysts had predicted for Round Rock, Texas-based Dell.
In a conference call, Chief Financial Officer Brian Gladden said sales picked up toward the end of the quarter, but that is normal for the time of year. Gladden said May was no better than the first quarter, and, looking ahead, he said orders and conversations with customers yield “mixed signals.”
“We would hope that we would see improved demand in the later part of the year,” Gladden said. “Hopefully sooner versus later.”
HP’s chief executive, Mark Hurd, has expressed similar caution. Speaking at an investor conference Thursday, Hurd would not say when he thought the PC market would begin to rebound.
That is in contrast to Paul Otellini, the CEO of Intel (Nasdaq: INTC) , the world’s biggest supplier of PC microprocessors, who has said sales already appear to have bottomed out and returned to normal seasonal patterns.
At Dell, sales of laptops and the smaller, less powerful netbooks, which together make up Dell’s largest product category, fell 20 percent in the quarter. Recession-weary shoppers’ preference for netbooks and low-end PCs dragged average prices down 8 percent.
Revenue from large enterprises and small and medium-sized businesses worldwide fell about 30 percent. Consumer sales dropped 16 percent.
U.S. revenue, which accounts for 52 percent of Dell’s total, declined 21 percent, as did revenue in its Asia Pacific-Japan segment. Sales fell a steeper 29 percent in Europe, the Middle East and Africa combined. In Brazil, Russia, India and China, the so-called “BRIC” countries, revenue fell 21 percent.
Despite the PC maker’s uncertainty about the market, CEO Michael Dell said he expects big businesses to replace many workers’ computers in 2010, after Microsoft’s (Nasdaq: MSFT) next operating system, Windows 7, has been released.
Pacific Crest Securities analyst Andy Hargreaves said Dell’s quarterly report was much as expected, but one of the figures the PC maker threw out — that the average age of Dell PCs today is nine months to one year older than in the past — stood out.
“We’re definitely seeing people push out their PC purchasing,” he said. “If Windows 7 and new Intel chips do spur people to upgrade, you could see a reasonably sized refresh cycle.”
Dell said it slashed operating expenses by 15 percent from a year ago to $1.8 billion as the PC maker tries to squeeze $4 billion out of its annual costs. Some of the savings is coming from a shift from company-owned factories to less-expensive contract manufacturers, and some is tied to layoffs . Gladden would not say how many people Dell laid off in the quarter, nor would he say what the PC maker’s plans are for future job cuts.
Shares of Dell edged up 16 cents to $11.64 in after-hours trading. Before the earnings report, they rose 36 cents, or 3.2 percent, to end the regular session at $11.48.
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