Dell profits fall 47% as consumers walk away

Dell has released its third-quarter results and they don’t make pretty reading, with profits down 47% on the back of falling PC sales, weaker demand from large corporations and the shift to mobile computing.

Dell’s consumer PC business is struggling as more consumers are using smartphones and tablets for basic computing, and the company’s corporate customers continue to defer spending due to the uncertain state of the economy.

The manufacturer warned that it “sees the challenging global macroeconomic environment continuing in the fourth quarter”.

Dell, 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, but said it expected revenue to grow as much as 5% in the current quarter.

“Our outlook for the quarter would be generally consistent with what we typically see in terms of a seasonal pickup,” it said.

Dell’s challenges are frankly the same as before – namely the tough macroeconomic environment and cannibalisation from mobile devices on Apple and Google

Dell said revenue in its fiscal third quarter fell 11 % to $13.7bn, slightly lower than the average analyst estimate of $13.89bn, according to Thomson Reuters.

It posted net income of $475 million in the quarter, compared with $893 million a year earlier and chief financial officer Brian Gladden said business 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.

Dell’s enterprise solutions revenue rose 3% to $4.8bn, while server and networking revenue climbed 11%. In contrast, consumer revenue plummeted 23% to $2.5bn, underscoring the plight of the broader PC market, and sales to large corporation declined 8% to $4.2bn in the quarter.

Dell’s “challenges are frankly the same as before – namely the tough macroeconomic environment and cannibalisation from mobile devices using mobile operating systems from Apple and Google,” Shaw Wu, analyst with Sterne Agee, said.

The consumer market is improving with the launch of the Windows 8, Gladden said. But sales of devices featuring the Windows 8 software have yet to ramp up, while Microsoft is already in the market with its new Surface tablet computer, which may hurt PC sales.

Fiscal cliff

Apart from the consumer slump, Dell’s business customers have held back spending, which could be partly attributed to the looming fiscal cliff in the US, Gladden said.

The fiscal cliff involves $600 billion in automatic tax hikes and spending cuts effective in early 2013 – and Dell said 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.”