Hurt by Rivals from Asia, Dell Profit Falls 47%

SAN FRANCISCO (Reuters) — Dell’s third-quarter profit fell 47 percent, the company said on Thursday, hurt by lower PC sales and weaker demand from large corporations. But Dell said it expected revenue to grow as much as 5 percent in the current quarter compared with sales in the previous one.

The company, once the world’s top PC maker and a pioneer in computer supply chain management, is struggling to defend its market share against Asian rivals like Lenovo. It is trying to bolster growth by focusing on products and services to corporations.

The company, founded by its chief executive, Michael Dell, said that it saw “the challenging global macroeconomic environment continuing in the fourth quarter.”

Net income was $475 million, or 27 cents a share, compared with $893 million, or 49 cents a share, in the period a year earlier. Excluding certain items, it earned 39 cents a share, compared with an average forecast of 40 cents.

Revenue fell 11 percent, to $13.7 billion, slightly less than the average analyst estimate of $13.89 billion, according to Thomson Reuters.

Dell’s chief financial officer, Brian T. Gladden, said in an interview that corporate customers continued to postpone technology spending.

“It’s not clear what’s going to cause them to increase their spending in the short term, given the uncertainty in the economy,” he said.

Dell’s enterprise solutions revenue rose 3 percent to $4.8 billion, while server and networking revenue climbed 11 percent. In contrast, consumer revenue plummeted 23 percent to $2.5 billion, underscoring the plight of the broader PC market. And sales to large corporations declined 8 percent to $4.2 billion.

The consumer market is improving with the introduction of the Windows 8 operating system from Microsoft, which has been designed with touch-screen devices and Internet-based computing in mind, Mr. Gladden said.

Part of the spending weakness among corporate customers comes from worry over early next year, when trillions of dollars in tax increases and automatic spending cuts will begin to go into force unless lawmakers agree on legislation to reduce the budget deficit, Mr. Gladden said.

The cuts could take a toll on consumer and government spending and cause the economy to stall.

“I would tell you that the behavior we are seeing from our customers today is actually driven by that uncertainty,” Mr. Gladden said. “It’s not like it’s all going to happen overnight. It’s affecting our business today.”

Dell is ensuring that it has access to cash in case there is no Congressional action. “I would say there are several things we are doing from a planning standpoint,” Mr. Gladden said, “to ensure that we are in a position to have appropriate access to liquidity.” He said Dell was making sure it would have access to lines of credit and commercial paper.

Dell shares fell around 2 percent in late trading from their close of $9.56. The shares initially rose after the release of the results.


Curtsy: The New York Times