Dell profits down - and there's more trouble ahead

 

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By Barry Collins

Posted on 21 Nov 2008 at 07:56

Dell has reported a year-on-year drop in profits of 5% and has warned of tough times ahead.

The company surprised analysts with a larger than expected increase in earnings per share, up 9% on the same period last year.

Yet, that failed to mask an underlying fall in both revenue and net income. Despite shipping 3% more units than the same quarter last year, the company saw revenue slide by 3%.

Dell predictably blamed the results on the global economic downturn, although the company has been criticised for its delayed entry into the netbook market, which has seen it lose ground on rivals such as Asus and Acer.

However, Michael Dell insists the company is driving revenue from the non-PC parts of the business. "Our business model adapts quickly to economic changes, even the kind of significant challenge we saw in the third quarter," the chairman and CEO claims.

"We increased profitability with an improved mix of products and services - more than a third of our revenue and profit now comes from servers, storage, services and software and peripherals - and benefited from initiatives to improve our competiveness, including tight cost controls."

Those tight cost controls include the laying off of 10,800 staff - far more than the 8,900 jobs the company had planned to axe.

And Dell warns that further jobs may have to be cut in the year ahead. "Dell believes that global IT end-user demand will continue to be challenging," the company's financial outlook reads.

"The company will continue to incur costs as it realigns its business to improve competitiveness, reduce headcount in certain areas and invest in infrastructure, growth opportunities and acquisitions."