Tags: dell | profit | outlook | pc

Dell Shares Tumble as Profit, Outlook Fall Short

Tuesday, 22 May 2012 04:46 PM EDT

Dell Inc. on Tuesday forecast fiscal second-quarter revenue that missed analysts’ estimates as consumers and businesses held off on buying personal computers and the company continued to focus on profit margins instead of sales growth. The company's shares fell sharply after the news.

Revenue for the period ending in July will be $14.7 billion to $15 billion, Round Rock, Texas-based Dell said in a statement, compared with the average $15.4 billion analyst estimate compiled by Bloomberg.

The world’s third-largest personal computer maker lost share in the global PC market in the first three months of the year, according to market researcher Gartner Inc. Dell has eschewed sales of less profitable PCs to boost its profit margin, which is causing revenue to slump, said Shaw Wu, an analyst at Sterne Agee & Leach Inc. in San Francisco.

“They’re focused on profitability,” Wu said in a research report last week. “That’s a double-edged sword. Sure, it can help your margins somewhat. But you’re also shrinking your installed base.”

In trading after the regular market close, Dell shares were down 10.5 percent, or $1.59, at $13.49 each. The shares had risen less than one percent to $15.08 at the close in New York.

Fiscal first-quarter net income was $635 million, or 36 cents a share, compared with $945 million, or 49 cents a year earlier. Sales fell 4 percent to $14.4, compared with an average $14.9 billion estimate. Profit excluding some items was 43 cents a share, while the average projection was 46 cents.

Gross Margin

Gross margin, or the percentage of sales remaining after deducting costs of production, was 21.3 percent in the first quarter, compared with a 22 percent estimate. A year earlier, gross margin was 22.9 percent.

Global PC shipments in the first quarter increased about 1.9 percent, according to Gartner Inc. Hewlett-Packard Co. remained the market leader, accounting for 17.2 percent of worldwide PC shipments, Gartner said. Lenovo Group Ltd., Dell Inc., Acer Inc. and Asustek Computer Inc. rounded out the top five. Apple Inc. ranked third in the U.S., behind Hewlett-Packard and Dell.

Shipments of business PCs slumped in April and consumers are holding off on buying machines until Microsoft Corp. releases its Windows 8 operating system, expected in the last quarter of this year, Morgan Stanley analyst Katy Huberty said in a May 17 research note.

To diversify beyond PCs, Dell is selling more of its own data-storage and networking gear, instead of relying on products made companies including EMC Corp.

Dell and rival Hewlett-Packard are also counting on sales of thin, lightweight laptops called “ultrabooks” to spur revenue. Dell’s newest ultrabook, called the XPS 13, sells for $999 on the company’s Web site.

© Copyright 2024 Bloomberg News. All rights reserved.

Tuesday, 22 May 2012 04:46 PM
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