Dell profit falls 47% hurt by slow tech spending

DROP: Dell Inc’s profit slid 47%, hurt by lower PC sales and weaker demand from large corporations, but the No 3 PC maker said it expects revenue to grow as much as 5% in the current quarter. — Reuters

SAN FRANCISCO: Dell Inc’s profit slid 47%, hurt by lower PC sales and weaker demand from large corporations, but the No 3 PC maker said it expects revenue to grow as much as 5% in the current quarter.

Dell shares fell 2.3% in afterhours trade. 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 chief executive Michael Dell warned that it “sees the challenging global macro-economic environment continuing in the fourth quarter.”

Dell said revenue in its fiscal third quarter fell 11% to US$13.7bil (RM41.1bil), slightly lower than the average analyst estimate of US$13.89bil (RM41.7bil), according to Thomson Reuters I/B/E/S.

It posted net income of US$475mil (RM1.43bil), or 27 cents (81sen), a share in the fiscal third quarter, compared with US$893mil (RM2.7bil), or 49 cents (RM1.47) a year earlier. Excluding certain items, it earned 39 cents (RM1.17) a share, compared to an average forecast for 40 cents (RM1.20).

Chief financial officer Brian Gladden said in an interview that corporate customers continue to defer 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% to US$4.8bil (RM14.4bil), while server and networking revenue climbed 11%. In contrast, consumer revenue plummeted 23% to US$2.5bil (RM7.5bil), underscoring the plight of the broader PC market, and sales to large corporation declined 8% to US$4.2bil (RM12.6bil) in the quarter.

The consumer market is improving with the launch of the Windows 8 software from Microsoft, which has been designed with touchscreen devices and Internet-based computing in mind, Gladden said.

Planning for fiscal cliff

Part of the spending weakness among corporate customers is because of the looming fiscal cliff, Gladden said.

The fiscal cliff involves US$600bil (RM1.8 trillion) in automatic tax hikes and spending cuts effective at the end of the year if US lawmakers fail to agree on reducing the budget deficit.

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

“I would tell you that the behaviour we are seeing from our customers today is actually driven by that uncertainty,” 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, especially on the treasury side to ensure that we are in a position to have appropriate access to liquidity,” Gladden said, adding that Dell is making sure it has access to lines of credit and commercial paper. — Reuters

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