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Dell profits fall 47% as consumers walk away

Dell

By Reuters

Posted on 16 Nov 2012 at 09:30

Dell has released its third-quarter results and they don’t make pretty reading, with profits down 47% on the back of falling PC sales, weaker demand from large corporations and the shift to mobile computing.

Dell's consumer PC business is struggling as more consumers are using smartphones and tablets for basic computing, and the company's corporate customers continue to defer spending due to the uncertain state of the economy.

The manufacturer warned that it "sees the challenging global macroeconomic environment continuing in the fourth quarter".

Dell, 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, but said it expected revenue to grow as much as 5% in the current quarter.

"Our outlook for the quarter would be generally consistent with what we typically see in terms of a seasonal pickup," it said.

Dell's challenges are frankly the same as before - namely the tough macroeconomic environment and cannibalisation from mobile devices on Apple and Google

Dell said revenue in its fiscal third quarter fell 11 % to $13.7bn, slightly lower than the average analyst estimate of $13.89bn, according to Thomson Reuters.

It posted net income of $475 million in the quarter, compared with $893 million a year earlier and chief financial officer Brian Gladden said business 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 $4.8bn, while server and networking revenue climbed 11%. In contrast, consumer revenue plummeted 23% to $2.5bn, underscoring the plight of the broader PC market, and sales to large corporation declined 8% to $4.2bn in the quarter.

Dell's "challenges are frankly the same as before - namely the tough macroeconomic environment and cannibalisation from mobile devices using mobile operating systems from Apple and Google," Shaw Wu, analyst with Sterne Agee, said.

The consumer market is improving with the launch of the Windows 8, Gladden said. But sales of devices featuring the Windows 8 software have yet to ramp up, while Microsoft is already in the market with its new Surface tablet computer, which may hurt PC sales.

Fiscal cliff

Apart from the consumer slump, Dell's business customers have held back spending, which could be partly attributed to the looming fiscal cliff in the US, Gladden said.

The fiscal cliff involves $600 billion in automatic tax hikes and spending cuts effective in early 2013 – and Dell said 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."

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User comments

?

Dear Dell,

I made my order a month ish ago for your Latitude 10 tablet as it featured a wonderful removable battery which, along with full fat Windows 8, means that I have a sensible tablet along with wacom stylus input.

The delivery date, which of course was estimated, was set for the 13th. The 14th arrived and there was no notification. After a quick call it's now set for the 28th. I've since been informed that it's now the 7th at the earliest.

Yay,

A customer.

P.s. If you want to beat Apple on product releases you've got a LOOONNGGG way to go. I'll cancel once it hits the 8th. Could PC Pro please let me know why the Dell, Acer and Lenovo tablets have all missed their release dates or are bing held back while the Sammy Ativ is out there? According to Dell they're waiting for a part... could that be the CPU?

By rhythm on 16 Nov 2012

Beaten by a "toy"

It must be galling for PC makers to see their tenuous profit margins eroded so dangerously due to the presence in the market of a device they wrote off as "a toy, fit only for pictures and music".

Maybe they should listen to public demand more and give people what they want, not what the engineers say they should have. Not that many PC makers have a big R&D department of course...

Dell were always one of the worst for customer service - twice I tried to buy a PC from them, and twice their lack of interest in anything below enterprise level meant other companies got the order.

By SwissMac on 16 Nov 2012

Reputation

Dell featured on my final list of prospective laptop suppliers with an XPS AND an Alienware for my last recommendation. The generally acknowledged CS problems, such as those above, ruled out the XPS and Alienware couldn't compete on price with the eventual victor - a Schenker XMG.

By dubiou on 16 Nov 2012

Dell Systems Price Much to High

It isn't any wonder to me that Dell is suffering, after all they have always charged at least twice what one could buy the parts for and build a comparable PC system. When I started looking for a new PC gaming system, I checked on a Dell system, and found that a system comparable to the one I wanted was well over $2,000. I decided to build my own system, and saved over $1,000 dollars getting the parts, and building it myself, over what Dell was asking for an Alienware system. It was plain to me that Dell was overcharging their customers on what they were selling.

Add to all of this the fact that the Alienware system had lower quality parts than I was able to get through Newegg, it was a no brainer for me to build my own system.

If Dell wanted to sell more systems, they could have cut their cost by 25% and sold many more systems. I know that they must get their components at a huge discount, even compared to what I paid on Newegg. For them to think that people will buy a system just because of the name on the case, is misguided.

By renegade_rivers on 17 Nov 2012

Customer Service again

I have used Dell PCs all through 10 years of my career in IT. However, in the past 2 years they have let me down really badly. We had a batch of PCs with failures, and one came back from the service centre with a virus on it! My complaint to Dell was completely ignored. There is more to customer service than sending a satisfaction survey by email!

By Stiggy on 17 Nov 2012

@renegade_rivers

"For them to think that people will buy a system just because of the name on the case, is misguided"

Er, happens a lot, just ask the biggest company in the world.

By TheHonestTruth on 19 Nov 2012

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