Dell Profits Drop Almost 50% as Fiscal Cliff Looms

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By David Gilbert | November 16, 2012 8:57 PM EST

Dell is struggling to compete in the PC market, as a combination of weak demand, tough competition and the looming fiscal cliff saw profits drop almost 50 percent in its latest set of financial results.

Dell shares fell 2.3 percent in after-hours trade following the announcement of the results. 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.

Striking one note of hope, Dell said it expects revenue to grow as much as 5 percent in the current quarter.

Dell said revenue in the fiscal third quarter of 2012 fell 11 percent to $13.7 billion (£8.6bn), but its profit was hit a lot harder, down 47 percent compared to the same period last year. 

Dell posted net income of $475m or 27 cents a share in the fiscal third quarter, compared with $893m or 49 cents a year earlier.

It was the company's server and networking division which was the only ray of light from the results with revenue up 11 percent, with the company saying it was the only one of the top three providers to have positive unit growth in the third quarter of 2012.

Consumer revenue

In contrast, consumer revenue plummeted 23 percent to $2.5bn, underscoring the plight of the broader PC market, and sales to large corporation declined 8 percent to $4.2bn in the quarter.

The PC market is struggling to compete with the booming tablet and smartphone market, which have already decisively overtaken PC sales.

Back in July, figures from Gartner revealed that PC sales were stagnant and that the introduction of the Intel-backed Ultrabook platform of thin-and-light laptops hadn't had the desired impact.

PC makers will be hoping that the launch of Windows 8 at the end of last month, along with a slew of new laptops form factors and the second generation of Ultrabooks will drive growth in the area.

Indeed Dell itself launched a number of new devcices receently including the Dell XPS 12, a laptop with a rotating touchscreen which can be used as a tablet. It also launched the XPS 10, which features a combination of Windows RT tablet and keyboard dock, similar to the Asus Transformer range of devices.

Dell is not the only PC maker in trouble however. Last month HP slashed its 2013 revenue outlook with CEO Meg Whitman saying that things were looking bleak for the former number one PC maker.

Looming fiscal cliff

Dell sees the challenging global macro-economic environment continuing in the fourth quarter, which will continue to impact the company's results.

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, adding that part of the spending weakness among corporate customers is because of the looming fiscal cliff.

The fiscal cliff involves $600bn in automatic tax hikes and spending cuts effective at the end of the year 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 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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