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Dell Shares Fall as Forecast Trails Estimates

Tuesday, 21 February 2012 06:10 PM

Dell Inc. forecast fiscal first-quarter revenue that missed analysts’ estimates as lackluster demand from consumers and governments eroded growth at the world’s third-largest maker of personal computers.

Revenue for the period ending in April will decrease 7 percent to $14.9 billion, Round Rock, Texas-based Dell said in a statement Tuesday. That missed the average $15.1 billion estimate of analysts, according to data compiled by Bloomberg. The shares fell in late trading after the report was released.

Sales in the consumer division fell 2 percent last quarter, evidence that Apple Inc. is winning over buyers with its Mac and iPad devices. Revenue in the business that caters to governments slipped 1 percent amid “weakness” in purchasing by U.S. federal agencies and governments in Western Europe, Dell said.

“When do we see revenue growth for the company start to show up?” said Abhey Lamba, an analyst at Mizuho Securities USA Inc. in New York, who initiated coverage of Dell this month with a “buy” rating. “They’ve been able to grow earnings because of cost management and supply-chain improvements. But you can do that for only so long. At a certain point, revenue needs to start growing or else earnings will come down.”

Dell is suffering from competition with Apple at the high end of the market and Lenovo Group Inc. and Acer Inc. at the low end, Shaw Wu, an analyst at Sterne Agee & Leach Inc., wrote in a Feb. 15 research note.

Dell slumped 4.7 percent to $17.37 in extended trading after gaining less than 1 percent to $18.21 at the close.

Consumers’ Wallets Shut

Consumers are keeping their wallets closed amid a slow economic recovery or opting for iPads instead of traditional notebook computers. Global PC shipments last year declined 4.9 percent, the worst performance since 2001, according to research firm IDC. In addition, hard disk drive production was crimped after last year’s flooding in Thailand.

The supply disruption will continue into the period that ends in October, Gladden said on a conference call with media.

Microsoft Corp.’s Windows 8 operating system, due later this year, may provide a lift to consumer sales. Dell is also selling more of its own data storage and networking gear instead of relying on products made by such companies as EMC Corp.

Profit in the fourth quarter declined to $764 million, or 43 cents a share. Sales rose 2 percent to $16 billion, in line with analysts’ $16 billion estimate. Per-share earnings excluding certain items will exceed $2.13 in fiscal 2013, compared with analysts’ $2.06 estimate.

‘Strong’ Business Demand

Business computing demand is “pretty strong,” Dell Chief Financial Officer Brian Gladden said in an interview after the results. Sales to large corporations rose 5 percent, while the unit that sells to small- and midsized businesses got a 6 percent boost, the company said.

Dell’s stock has outperformed the Standard & Poor’s 500 Index this year, rising 24 percent, compared with an 8.3 percent rise in the Standard & Poor’s 500 Index.

Dell and rival Hewlett-Packard Co. are counting on sales of thin, lightweight laptops called “ultrabooks” to spur sales. Dell’s new ultrabook, called the XPS 13, starts at $999. It’s made of aluminum, carbon fiber and glass, sports a 13.3-inch screen, and will go on sale later this month.

The company is also diversifying beyond PCs. It bought computer networking company Force 10 Networks Inc. last August for an undisclosed price and storage maker Compellent Technologies a year ago for $856.1 million. On Feb. 2, it hired former CA Inc. CEO John Swainson to head a new software group.

Dell may be scouting for a software acquisition worth $1 billion to $3 billion, Peter Misek, an analyst at Jefferies & Co. said. Misek has a “hold” rating on Dell shares.

Computer and data-management software makers Quest Software Inc. and CommVault Systems Inc. are possible targets, he said. BMC Software Inc., which makes tools to manage servers, may be too large with is $6.4 billion market value.

Dell plans to hold a Feb. 27 event in San Francisco with CEO Michael Dell to discuss its data-center products.

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Tuesday, 21 February 2012 06:10 PM
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