Dell suffers a 63 percent dip in earnings

By SiliconIndia   |   Friday, 29 May 2009, 12:13 Hrs
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Dell suffers a 63 percent dip in earnings
Bangalore: Dell has reported a drop in its sales by 23 percent and earnings by 63 percent in the first quarter of fiscal 2009. It’s a real setback to the investors who were expecting the sales to increase in this quarter. In the past few months, investors pushed the shares of Dell higher in extended trading, partly on hope that companies will replace their aging fleets of PCs as Microsoft introduces its Windows 7 operating system, the successor to its poorly received Windows Vista software, which many companies skipped buying.

Shares of Dell have increased almost 35 percent in last three months. But further gains may come only when it comes to know how rapidly companies will buy new PCs. Dell's report showed that corporations shied away from buying computers in recent months and that they're holding off on placing new orders. Sales of desktops and notebooks account for 58 percent of Dell’s sales.

Michael Dell, CEO, Dell says, “We're seeing a big deferral of purchases among corporations." It has been big profits decline for the second straight quarter at Dell, whose net income dropped 48 percent in the period that ended January 30. Worse, the company doesn't see prospects for improvement. Brian Gladden, C FO, Dell says, “We don't believe there's enough momentum to call a bottom yet.”

On the other side, Paul Otellini, CEO, Intel says, “The demand is returning to normal patterns in the current quarter. Contradicting his statement, HP says, it expects sales to decline four to five percent in fiscal 2009, which ends in October. Officials at IBM and Cisco systems say, “The tech demand had reached a nadir.”

Adding to these, Dell has been losing its share in PCs to HP, now the number one seller of PCs in the U.S. and worldwide. It also faces vigorous competition from Taiwanese vendor Acer, which has been gaining the market share.
Even as sales decline, Dell has been preserving profit margins through aggressive cost-cutting and refusing to lower prices too steeply. Dinesh Moorjani, Broadpoint AmTech analyst says, “Dell has resisted cutting prices as sharply as other PC makers have to gain market share.”
Investors are keen to see how quickly Dell will pull the trigger on acquisitions to gain scale and move itself into more profitable pockets of the IT market. Dell's stock is down about 47 percent in the past year, declining further than those of IBM, Apple, HP, and Intel. A rise in PC buying when Windows 7 arrives may help mitigate Dell's woes.

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