Dell 3Q profit falls as PC spending slows
PC maker Dell Inc. said Thursday its third-quarter profit fell 5 percent as businesses around the world bought fewer computers and other technology products.
Dell's earnings dipped to $727 million in the quarter that ended Oct. 31, down from $766 million a year ago. However, earnings per share rose 9 percent to 37 cents, because of stock buybacks.
That was 6 cents better than analysts were expecting, according to a Thomson Reuters poll.
Sales slipped 3 percent to about $15 billion, shy of analyst expectations for $16.2 billion, dragged down by slower spending by corporations.
"Dell managed its business well, but clearly, the overall economic environment is making it difficult for them," said Gartner Inc. analyst Charles Smulders.
In the Americas, Dell's largest region for sales to businesses, revenue dropped 8 percent as companies scrutinized their budgets.
Dell grew at a reasonable pace in August, but sales fell off in September and October, when the financial crisis deepened, Chief Financial Officer Brian Gladden said during a conference call.
"We expect the challenging environment to continue," Gladden said.
He also said Dell decided not to follow some competitors that slashed prices deeply. Gladden said that choice hurt Dell's revenue but helped preserve its profit margins. Michael Dell, the founder and CEO, said Dell would continue that course.
In one bright spot, Dell's consumer PC revenue increased 10 percent worldwide as unit shipments jumped 32 percent. Dell does not break out U.S. consumer sales, but Gladden said that "the U.S. was a strong part of the good performance."
Smulders, the Gartner analyst, attributed at least part of that bump to Dell's move to sell PCs in retail stores -- about 20,000 outlets today. Those retailers order more computers in advance of the holiday shopping season, a level that isn't sustainable through the year, especially in an economic downturn. Smulders said that given present levels of consumer confidence, Dell could find a "lot of stock left in retail."
Dell's consumer sales account for less than a fifth of the company's total, and the solid performance wasn't able to offset trouble in the corporate business. Dell also lacks the product diversity enjoyed by its biggest rival, Hewlett-Packard Co., which announced this week that it would exceed analysts' forecasts for its most recent quarter.
Shares of Dell jumped 5 percent to $10.34 in extended trading, after closing at $9.81 before the earnings report came out.
Retrenching as it tries to deal with the economic uncertainty, Dell has been on a cost-cutting campaign. The Round Rock, Texas-based company eliminated 2,200 jobs in the quarter and has slashed about 9 percent of its work force in the past year.
Dell also is reviewing its supply chain and manufacturing costs, but did not give an update Thursday about possible factory closures.
Dell's gross margin improved in the quarter, as lower numbers of employees helped push operating expenses down 11 percent from the previous year. Lower component costs also helped, as did a modest uptick in sales of software and services, which are more profitable than hardware.