Dell Second-Quarter Profit Falls Short of Estimates (Update3)
By Melita Marie Garza
Aug. 28 (Bloomberg) -- Dell Inc., the world's second-largest personal-computer maker, posted a profit that trailed analysts' projections and said a slowdown in technology spending is expanding into Europe and Asia.
The stock fell 10 percent in late trading after Dell reported earnings, excluding some costs, of 33 cents a share. That missed the 36-cent average of estimates compiled by Bloomberg. ``Strategic pricing'' hurt profit margins in Europe, the Middle East and Africa, Chief Financial Officer Brian Gladden said on a conference call.
Dell said it sees ``continued conservatism'' in U.S. spending, and that it has spread to Western Europe and some Asian countries. The company, which has trailed Hewlett-Packard Co. in PC shipments for eight straight quarters, has attempted to woo consumers with new designs and increased availability at stores to spur growth.
``The average price for computers is going down at such a rapid pace that all computer makers are facing a dilemma about whether to go for profit margin or market share,'' said Daniel Longfield, an analyst with market researcher Frost & Sullivan in San Antonio.
Second-quarter net income fell 17 percent to $616 million, or 31 cents a share, from $746 million, or 33 cents, a year earlier, Dell said in a statement today. Sales for the period ended Aug. 1 advanced 11 percent to $16.4 billion.
Dell, based in Round Rock, Texas, fell $2.52 to $22.69 in extended trading after closing at $25.21 on the Nasdaq Stock Market. The shares have gained 38 percent since mid-April.
Shares Plunge
``People are reacting to that miss, especially since they beat by 2 cents last quarter,'' Cowen & Co. analyst Louis Miscioscia said in an interview from Boston. He expects Dell's shares to outperform its peers, and said he doesn't own any.
Chief Executive Officer Michael Dell is targeting more clients in countries such as India and China as growth slows in the U.S. The company also is building machines in lower-cost countries to keep expenses down.
The PC maker cut prices ``aggressively'' in the second quarter to win market share, especially in Europe, Dell said on a conference call with analysts.
``We can fix it right away,'' he said. ``As far as what the improvement's going to be quarter-to-quarter, we're not going to give you a forecast.''
Sales to commercial clients in Asia advanced 16 percent to $2.05 billion, slower than the 19 percent growth in the first quarter. Sales to corporate customers in Europe, the Middle East and Africa advanced 11 percent to $3.5 billion, short of the 15 percent increase in the previous period.
Emerging Markets
Revenue from Brazil, Russia, India and China advanced 41 percent last quarter, Dell said. The company's share of sales from overseas dropped to 47 percent from just over 50 percent in the previous period. Commercial sales in the Americas rose 5.4 percent to $8.1 billion.
Sales of laptop computers advanced 26 percent to $4.87 billion, compared with a 1.8 percent drop in desktop PC revenue, to $4.93 billion.
Since taking back the top job last year, Dell has begun selling through retailers, adding more than 13,000 in at least 24 countries and enlisting resellers abroad. Dell, 43, had built up his PC business over the past two decades by selling machines mainly over the phone and the Web. Dell also has focused more on design to win consumers, introducing wedge-shaped models in hues such as Spring Green and Ruby Red.
Profit Margins
Gross margin, or the percentage of sales minus production costs, narrowed to 17.2 percent in the second quarter from 19.9 percent a year earlier. To save money, Dell is limiting the degree to which buyers can dictate specifications, instead expanding its line of prepackaged models.
``Profit will improve over the next four quarters,'' Gladden said on the analysts' call. He didn't specify whether the improvement would occur in the second half.
About three-quarters of the U.S. population owns a computer, according to IDC. That compares with about 5.1 percent in India and 9 percent in China, the Framingham, Massachusetts-based researcher said.
For corporate customers, Dell has introduced machines with longer battery life, flying to India this month to show off the biggest upgrade to the company's business line in six years. The company's share of the Indian PC market has more than doubled in the past two years, to 7.6 percent as of the end of the first quarter. That compares with 18.4 percent for Hewlett-Packard.
Yesterday Dell also debuted a line of laptops, called Vostro, aimed at smaller companies in developing countries. The machines are cheaper because they include free software and less technology.
Hewlett-Packard controlled 18.9 percent of the global PC market last quarter, according to IDC. Dell's share climbed to 16.4 percent in the period.
---With reporting by Rochelle Garner in San Francisco. Editor: Julie Alnwick, Cesca Antonelli
To contact the reporter on this story: Melita Marie Garza in New York at mgarza4@bloomberg.net
Last Updated: August 28, 2008 18:48 EDT |
