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| Dell headquarters Round Rock, Texas |
Dell on Thursday reported a 17% drop in quarterly profit after cutting prices to build market share in Asia. The PC maker's shares dropped 10% in after-hours trading.
Dell's falling profitability contrasted with rival Hewlett-Packard's report last week of a 14% jump in quarterly profit.
Dell reported fiscal second quarter revenue of $16.4 billion, up 11% year-over-year and driven by a 19% increase in worldwide product shipments. Earnings per share were $0.31 and cash flow from operations was $1.1 billion.
“We are positioning Dell to win in a new era of global IT spending,”saidMichael Dell, chairman and CEO. “We have our most competitive product portfolio ever – whether for digital nomads or hyper-scaled data centers. Our growth at a multiple of the industry across all major product categories for the second consecutive quarter affirms we are on track with our five key business priorities – notebooks, consumer, enterprise, SMB and emerging countries.”
Michael Dell bought $100 million worth of the company’s stock last quarter.
Operating income was $819 million, or 5 percent of revenue. Dell said gross margins in the quarter, which ended on August 1st, were adversely affected by actions to drive growth in strategic areas like Global Consumer and EMEA (Europe, Middle East and Asia), as well as an increase in deferred revenue from the sale of successful service offerings in EMEA, which will be recognized in subsequent periods.
Chief Financial Officer Brian Gladden said on a conference call that Dell is seeing a slowdown in tech spending that is beginning to metastasize.
"It really started with big corporations, and we've seen slowing in state and local government spending, small to medium sized businesses as well,"Gladden told reporters.
The company expects "continued conservatism" in business tech spending in the US as well as Europe and "several countries in Asia."
``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.
Dell shipped more than twice as many consumer laptops this quarter as it did a year ago, driving revenue up 28% to $2.8 billion but profitability was roughly break-even.
Notebook sales remained strong, rising 26% in the quarter from a year earlier. But sales of desktop computers declined 2%.
Revenue from the BRIC (Brazil, Russia, India and China) countries rose 41% last quarter, Dell said. The company's share of sales from overseas dropped to 47% from just over 50% in the previous period.
Bloomberg says that the company's share of the Indian PC market has more than doubled in the past two years, to 7.6% as of the end of the first quarter. That compares with 18.4% for Hewlett-Packard.
US IT research firm IDC says about three-quarters of the US population owns a computer compared with about 5.1% in India and 9% in China,
Dell said headcount fell by more than 8,500 in the past year, excluding increases from acquisitions. In the third quarter, the company will attain the goal of 8,900 it set for reductions a little more than a year ago.
Shares fell 42 cents to $25.21 in 4 p.m. trading on the Nasdaq Stock Market. Following the earnings report, shares tumbled 10% in after-hours trading to $22.70.
Results detail
