Lower Dell outlook fuels PC fears

Wednesday 22 February 2012 13.58
Dell forecasts 7% drop in revenue in current quarter
Dell forecasts 7% drop in revenue in current quarter

Computer maker Dell has forecast that its revenue for its first financial quarter will be below Wall Street expectations.

The news fuelled fears that the PC industry has not fully emerged from its downturn and sent Dell shares more than 4% lower.

The world's number three PC maker projected sales would be down 7% this quarter from the previous quarter, when it posted revenue of $16 billion. That translates into about $14.9 billion, below the average forecast for roughly $15.2 billion.

Dell's financial fourth quarter earnings also came in below expectations as strength in its corporate business was offset by the weakness in the division that caters to public businesses.

Revenue in Dell's fiscal fourth quarter was up 2% at $16 billion. Net profit slid 18% to $764m, or 43 cents a share, for the period. Excluding once-off items, it earned 51 cents a share, a cent below the 52 cents expected.

Dell's large-enterprise business held up well, increasing sales 5% in the quarter to $4.9 billion, as corporations continued to upgrade aging hardware. Dell's public business generated revenue of $3.9 billion, which was down 1% from a year ago due to weakness in the US and Western Europe while Dell's sales to consumers fell 2% over the same period.

Chief financial officer Brian Gladden said profit margins for the quarter were hurt by a combination of weakness in US public spending, discounting of the leftover inventory of its previous generation phones and the lingering impact of the Thailand flood on its product mix.

"We just didn't get the mix of drives that we wanted and it really forced us to sell less configured lower-end systems and prevented us from accessing higher margin more highly configured systems," he said.

PC makers have grappled with slackening demand as mobile devices such as Apple iPad erode market share, while a shortage of hard drives after flooding in Thailand affected supply.

Dell has been trying to boost profit margins by getting out of low-margin businesses and focusing on being a one-stop-shop for business customers.