By Aaron Ricadela - Nov 16, 2011 6:32 AM GMT+0700
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Michael Dell, chairman and chief executive officer of Dell Inc. Photographer: Tony Avelar/Bloomberg
Nov. 15 (Bloomberg) -- Shaw Wu, analyst at Sterne Agee & Leach Inc., talks about third-quarter revenue at Dell Inc. The third-largest maker of personal computers reported sales that missed estimates, even as its focus on higher-margin technology boosted profit. Wu speaks with Lisa Murphy and Julie Hyman on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Dell Inc. (DELL), the third-largest maker of personal computers, reported sales that missed estimates, even as its focus on higher-margin technology boosted profit.
Third-quarter revenue declined to $15.37 billion, Round Rock, Texas-based Dell said today in a statement. Analysts had projected $15.7 billion on average, according to Bloomberg data. Net income rose to $893 million, or 49 cents a share, from $822 million, or 42 cents, a year earlier. Excluding some costs, profit was 54 cents a share, topping the 47-cent estimate.
Dell, once the world’s biggest PC maker, has ceded market share and concentrated on more profitable corporate technology, including servers, services and networking. Dell also tempered its revenue outlook for the rest of year, citing sluggish sales in the U.S. and Europe. A shortage of computer disk drives, caused by flooding in Thailand, presents another challenge.
“It is severe,” said Brian Marshall, an analyst at ISI Group Inc. in San Francisco, who has a “neutral” rating on Dell. The flooding may cause disk costs to climb, even if Dell doesn’t run into shortages, he said. “I don’t think they’re going to have problems getting supply. I do think they’ll have problems with pricing.”
Dell fell 1.5 percent to $15.40 in late trading after the report. The shares, up 15 percent this year, had closed at $15.63 in New York.
‘A Bit Lighter’
Slow consumer sales in developed countries and weak orders from the U.S. government hurt demand last quarter, Dell Chief Financial Officer Brian Gladden said in an interview.
“The revenue did come in a bit lighter than expected,” he said.
Revenue will increase 1 percent to 5 percent this fiscal year, which ends in January, Dell said. Growth is “trending” to the lower end of that range, the company said. Analysts had predicted sales growth of 2 percent.
While the flooding may result in higher disk-drive costs, lower memory-chip prices are helping PC makers rein in expenses, said Chris Whitmore, an analyst at Deutsche Bank in San Francisco.
“Memory pricing has just been fantastic for the box makers,” said Whitmore, who recommends buying Dell shares.
Tighter Focus
Under Chief Executive Officer Michael Dell, the company is winnowing its line of consumer products and focusing on small and medium-size businesses and government agencies, which account for more than half its sales. Dell now ranks behind Hewlett-Packard Co. and Lenovo Group Ltd. in the PC industry, down from first place in 2006.
The company plans to keep making acquisitions to expand in hardware and software for corporate and government data centers, its CEO said at a company conference last month. The diversification beyond desktop and laptop computers comes as PC sales ebb. Market research firm IDC cut its shipment forecast on Nov. 10, citing the Thailand flooding.
Rising waters have swamped industrial parks where companies such as Western Digital Corp. and Toshiba Corp. make about a quarter of the world’s disk drives. The flood has caused drive prices to increase by $10 to $25, Seagate Technology Plc Chief Executive Officer Steve Luczo said in a interview this month.
Dell has loaded up on disk-drive inventory, helping mitigate the shortage.
“It’s still a pretty fluid situation,” Gladden said.
To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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