Dell Inc's third-quarter profit slid 47 percent, hurt by lower PC sales,
weaker demand from large corporations and the shift to mobile
computing.
Dell's consumer PC business is struggling as more and more
consumers are using smartphones and tablets to do basic computing, and
the company's corporate customers continue to defer spending due to the
uncertain state of the economy.
The No. 3 personal computer maker
warned that it "sees the challenging global macroeconomic environment
continuing in the fourth quarter."
The company, 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.
It is trying to bolster growth by focusing on products and services to
corporations.
The company said it expects revenue to grow as much as 5 percent 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
said revenue in its fiscal third quarter fell 11 percent to $13.7
billion, slightly lower than the average analyst estimate of $13.89
billion according to Thomson Reuters I/B/E/S.
It posted net income
of $475 million or 27 cents a share in the quarter, compared with $893
million or 49 cents a year earlier. Excluding certain items, it earned
39 cents a share, compared to an average forecast for 40 cents.
Chief Financial Officer Brian Gladden said in an interview that corporate 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 percent to $4.8 billion, while
server and networking revenue climbed 11 percent. In contrast, consumer
revenue plummeted 23 percent to $2.5 billion, underscoring the plight of
the broader PC market, and sales to large corporation declined 8
percent to $4.2 billion in the quarter.
Dell's "challenges are
frankly the same as before - namely the tough macroeconomic environment
and cannibalization 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 software
from Microsoft, which has been designed with touchscreen devices and
Internet-based computing in mind, 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.
Planning for "fiscal cliff"
Apart
from the consumer, Dell's business customers have held back spending,
which could be partly attributed to the looming fiscal cliff, Gladden
said.
The fiscal cliff involves $600 billion in automatic tax
hikes and spending cuts effective in early 2013 if U.S. lawmakers fail
to agree on reducing the budget deficit.
The cuts could take a toll on consumer and government spending and cause the economy to stall.
"I
would tell you that the behavior 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."
Dell is ensuring that it has access to cash in case there is no congressional action.
"I
would say there are several things we are doing from a planning
standpoint, especially on the treasury side to ensure that we are in a
position to have appropriate access to liquidity," Gladden said, adding
that Dell is making sure it has access to lines of credit and commercial
paper.
Dell shares fell 2.3 percent to $9.36 in after-market
trade from its close of $9.56. The shares initially rose following the
release of the results.
© Thomson Reuters 2012