Dell feels the squeeze from economic downturn
But cuts help ease the pain.
By Agam Shah, IDG News Service | Published: 14:24, 21 November 2008
The economic downturn has claimed another victim after Dell recorded falls in both profits and revenues, as the PC maker struggles to cope with the IT spending slowdown and less demand for its products.
Net income dropped 5 percent to $727 million (£486 million), for the quarter that ended 31 October, but this beat analyst estimates of $616 million. Meanwhile revenue fell 3 percent to $15.16 billion, short of the $16.2 billion estimated by analysts polled by Thomson Reuters.
Dell recorded a 10 percent sales growth globally from its consumer business, but the commercial business saw a revenue decline in the Americas and EMEA (Europe, Middle East and Africa) of 8 percent and 5 percent, respectively. Commercial laptop shipments had flat growth year-over-year, while server shipments dropped by 4 percent. Commercial revenue grew by only 2 percent in the Asia-Pacific and Japan region.
The global IT environment will continue to be challenging and Dell will try to adapt, the company said.
"Given the choice between profits and growth, we will go for profits," CEO Michael Dell said on a conference call with analysts.
Dell is in the midst of an effort to cut costs by contracting out parts of its business, cutting staff and other means. In April it said it wanted to save $3 billion by 2011 by reducing its headcount and sourcing cheaper materials and components.
The company has started a temporary hiring freeze, though there will be some hiring to meet specific needs, CFO Brian Gladden said on the call. Dell has already shut down some manufacturing plants and customer service centres around the world this year to reduce costs.
Dell is finding that customers in emerging countries are willing to spend on its products. In the BRIC countries - Brazil, Russia, India and China - revenue increased 20 percent year-over-year, while unit shipments increased 43 percent.
Dell said it would take a cautious approach to the coming quarters and act conservatively. Product lines that deliver higher margins will be introduced in favour of lower-margin products, Michael Dell said.
The company has decided to keep its Financial Services unit, which it had put up for sale earlier this year. It is a profitable unit for Dell despite the economic environment, Gladden said.
