Dell's Q3 profit slides 54 percent

Sales to enterprises and small businesses were down sharply from a year earlier

Dell reported third-quarter profits on Thursday that were down 54 percent from this time last year, though the company said it was encouraged by a slight uptick in sales from the prior quarter.

Dell's net income for the three months to Oct. 30 was US$337 million, or $0.17 per share, down from $727 million, or $0.37 a share, in the same quarter last year, the company said. Revenue declined 15 percent to $12.9 billion.

Sales were down from a year earlier in all of Dell's main business units, including the large-enterprise division, where revenue dropped 23 percent, and the smaller business segment, where it fell 19 percent.

Still, Chief Financial Officer Brian Gladden said Dell saw some "encouraging signs" and that business had started to improve in some commercial markets. Sales in its enterprise and small-business segments, while down year-over-year, were up sequentially for the first time in seven quarters, he said.

"While we've been talking about demand stabilizing in prior quarters, we're now seeing signs of improvement in some markets, including key commercial markets worldwide," he said during a call with reporters.

Still, the results were poorer than expected. Dell's profit before one-time charges was $0.23 per share, below the $0.28 that financial analysts had forecast, according to Thomson Reuters. Its revenue also came in below Wall Street's target.

Dell was in need of a strong quarter after its main rival, Hewlett-Packard, released preliminary profit numbers last week that were better than expected. HP's earnings before one-time charges were $1.14 per share, up from $1.03 a year earlier, while revenue dropped 8 percent to $30.8 billion, the company said. HP will report its full results on Monday.

Dell has also been struggling in the PC market, where it has slipped to third position in the worldwide rankings behind HP and Acer, according to IDC. Dell depends more heavily than its rivals on the business sector, which cut spending sharply amid the recession.

The company also faces pressure in the data center, following HP's news last week that it will acquire networking vendor 3Com for $2.7 billion, and Cisco Systems' entry into the blade-server market earlier this year.

Dell is moving to diversify its own business. It is trying to build a bigger business in IT services with its $3.9 billion purchase of Perot Systems, and it has partnered with Brocade and Juniper to resell their networking equipment. Two years ago it bought storage vendor Equalogic for $1.4 billion.

It is also trying to move into the smart-phone business with last week's launch of the Mini 3, based on Google's Android OS. The phone will be sold initially in China and Brazil, but a version may eventually come to the U.S. and Europe.

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James Niccolai

IDG News Service
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