Dell's sales revenue falls; slow growth predicted
Updated: 2011-11-17 07:56
SAN FRANCISCO - Dell Inc, the third-largest maker of personal computers, missed third-quarter revenue estimates after walking away from $2 billion in potential PC sales to focus on more profitable technology.
The Texas-based company gave up billions in "low-value" PC opportunities because it wanted to preserve margins, Vice-Chairman Jeff Clarke told analysts on Tuesday. That contributed to revenue declining to $15.37 billion in the period, from $15.39 billion a year earlier. Analysts had projected $15.7 billion.
While Dell beat profit estimates for the third quarter, the company told investors to expect slower sales growth for the rest of the year. Dell is increasingly opting to sidestep the low end of the market in favor of servers, services and networking equipment.
"They walked away from unprofitable business," said Jayson Noland, an analyst at Robert W. Baird. "It sounds like HP got really aggressive on pricing."
Third-quarter net income rose to $893 million, or 49 cents a share, from $822 million, or 42 cents, a year earlier. Excluding some costs, profit was 54 US cents a share, topping the 47 cent estimate.
'A bit lighter'
Slow consumer sales in the United States and Western Europe and weak orders from the federal government hurt demand last quarter, Dell Chief Financial Officer Brian Gladden said in an interview.
"The revenue did come in a bit lighter than expected," he said. The company is "pruning" its product line to focus on more profitable areas, he said. Dell's sales of servers and networking gear rose 13 percent during the quarter, and services increased 10 percent, while revenue from desktop and laptop computers fell.
Total revenue will increase 1 to 5 percent this fiscal year, which ends in January, Dell said. Growth is "trending" to the lower end of that range, the company said. Analysts had predicted sales growth of 2 percent.
While the flooding in Thailand may result in higher disk-drive costs, lower memory-chip prices are helping PC makers rein in expenses, said Chris Whitmore, an analyst at Deutsche Bank AG.
"Memory pricing has just been fantastic for the box makers," said Whitmore, who recommends buying Dell shares.
Under Chief Executive Officer Michael Dell, the company is winnowing its line of consumer products and focusing on small and medium-size businesses and government agencies, which account for more than half its sales. Dell now ranks behind Hewlett-Packard and Lenovo Group Ltd in the PC industry, after leading the market as recently as 2006.
The company plans to keep making acquisitions to expand in hardware and software for corporate and government data centers, its CEO said last month.
The company also is increasing research-and-development spending as it integrates enterprise-computing companies it's acquired, the CEO said. R&D outlays on an annual basis are approaching $1 billion, he said. In the previous fiscal year, Dell spent $661 million.
"This is a new Dell," he said. "In a $3 trillion industry, there's plenty of opportunity for us to grow."