Dell Misses Estimates Amid Sluggish PC Sales
Dell Forecast Trails Estimates Amid Sluggish Computer Sales
David Paul Morris/Bloomberg
A Dell Ultrabook at the International Consumer Electronics Show (CES) in Las Vegas.
A Dell Ultrabook at the International Consumer Electronics Show (CES) in Las Vegas. Photographer: David Paul Morris/Bloomberg
Feb 21 (Bloomberg) — Ashok Kumar, senior technology analyst at Maxim Group LLC, talks about Dell Inc.’s fiscal fourth-quarter performance and the company’s server and storage businesses.
Kumar speaks with Emily Chang on Bloomberg Television’s “Bloomberg West.” Bloomberg’s Cory Johnson also speaks. (Source: Bloomberg)
Feb. 21 (Bloomberg) — Mark Lehmann, president of JMP Securities, independent trader Andrew Keene and Bloomberg’s Bill Maloney talk about the outlook for Dell Inc.
They speak with Trish Regan on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)
Michael Dell
Tony Avelar/Bloomberg
Michael Dell, chairman and chief executive officer of Dell Inc.
Michael Dell, chairman and chief executive officer of Dell Inc. Photographer: Tony Avelar/Bloomberg
Dell Inc. (DELL) fell as much as 5.1
percent in late trading yesterday after its first-quarter sales
forecast missed analysts’ estimates, dragged down by lackluster
personal-computer demand from consumers and governments.
Revenue for the period ending in April will decrease 7
percent to $14.9 billion, Round Rock, Texas-based Dell said in a
statement. That trailed the average $15.1 billion estimate of
analysts, according to data compiled by Bloomberg.
The sluggish sales — coupled with shrinking profit last
quarter — have raised concerns about Dell’s comeback plan,
which has relied on streamlining operations to boost earnings.
After an almost 25 percent gain in Dell’s shares this year, some
investors may have been overly optimistic about the company’s
ability to turn around its operations, said Brian Marshall, an
analyst at ISI Group Inc. in San Francisco.
“The ship is so big that to move the needle is a herculean
feat,” said Marshall, who has a “neutral” rating on the
shares. “Expectations are way too high.”
Dell, the world’s third-largest maker of PCs, fell as low
as $17.29 in extended trading. So far this year the stock had
outperformed the Standard Poor’s 500 Index, which climbed 8.3
percent.
Fourth-quarter net income declined 18 percent to $764
million, or 43 cents a share, from $927 million, or 48 cents, a
year earlier. Sales rose 2 percent to $16 billion, in line with
analysts’ estimates. Excluding some items, earnings will be at
least $2.13 a share this fiscal year, Dell said.
Apple Competition
Sales in the consumer division fell 2 percent last quarter,
evidence that Apple Inc. is winning over buyers with its Mac and
iPad devices. Revenue in the business that caters to governments
slipped 1 percent amid “weakness” in purchasing by U.S.
federal agencies and governments in Western Europe, Dell said.
“When do we see revenue growth for the company start to
show up?” said Abhey Lamba, an analyst at Mizuho Securities USA
Inc. in New York, who initiated coverage of Dell this month with
a “buy” rating. “They’ve been able to grow earnings because
of cost management and supply-chain improvements. But you can do
that for only so long. At a certain point, revenue needs to
start growing or else earnings will come down.”
Dell is suffering from competition with Apple at the high
end of the market and Lenovo Group Inc. and Acer Inc. at the low
end, Shaw Wu, an analyst at Sterne Agee Leach Inc., wrote in a
research note earlier this month. Chief Executive Officer
Michael Dell, who retook the reins of the company in 2007, is
making deals and adding new products in a bid to revive growth
and focus on more profitable areas.
Tight Purse Strings
Consumers are keeping their wallets closed as they cope
with a slow economic recovery, and some are opting for iPads
instead of traditional notebook computers. U.S. PC shipments
declined 4.9 percent last year, the worst performance since
2001, according to research firm IDC.
In addition, last year’s flooding in Thailand crimped disk-
drive production. The supply disruption will continue into the
quarter that ends in October, the company said.
Microsoft Corp.’s Windows 8 operating system, due later
this year, may provide a lift to consumer PC sales, Michael Dell
said yesterday on a conference call with analysts. It also will
entice business customers that want to buy tablets running
Windows, he said. Until now, most tablets have run software from
Apple or Google Inc.
“With Windows 8, there’s great excitement in the corporate
space for us,” Dell said. “There’s pretty strong appetite for
Windows 8 tablets in the enterprise.”
Business Strength
Dell also is selling more of its own data-storage and
networking gear, instead of relying on products made by such
companies as EMC Corp. Business computing demand is “pretty
strong,” Chief Financial Officer Brian Gladden said in an
interview. Sales to large corporations rose 5 percent last
quarter, while the unit that sells to small and midsize
businesses got a 6 percent boost, the company said.
Dell and rival Hewlett-Packard Co. (HPQ) are counting on sales of
thin, lightweight laptops called “ultrabooks” to spur sales.
Dell’s new ultrabook, called the XPS 13, starts at $999. It’s
made of aluminum, carbon fiber and glass, sports a 13.3-inch
screen, and will go on sale later this month.
Dell also is diversifying beyond PCs. It bought computer
networking company Force 10 Networks Inc. last August for an
undisclosed price and storage maker Compellent Technologies a
year ago for about $856 million. On Feb. 2, it hired former CA
Inc. CEO John Swainson to head a new software group.
Software Deal?
Dell may be scouting for a software acquisition worth $1
billion to $3 billion, said Peter Misek, an analyst at Jefferies
Co. Misek has a “hold” rating on Dell shares.
Computer and data-management software makers Quest Software
Inc. and CommVault Systems Inc. are possible targets, he said.
BMC Software Inc., which makes tools to manage servers, may be
too large, considering its $6.4 billion market value.
Dell plans to hold a Feb. 27 event in San Francisco with
Michael Dell to discuss its data-center products. The company
will continue to acquire software companies, he said yesterday
on the conference call.
“There’s significant opportunity for us to build a big
business here,” he said.
To contact the reporters on this story:
Aaron Ricadela in San Francisco at
aricadela@bloomberg.net
To contact the editor responsible for this story:
Tom Giles at tgiles5@bloomberg.net
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