DOW JONES NEWSWIRES
Dell Inc.'s (DELL) fiscal third-quarter profit fell 54% as the downturn led to a double-digit drop in revenue, but the computer giant said it is seeing improving demand.
Shares fell 7.6% to $14.67 after-hours as the results fell short of expectations.
Nonetheless, Chairman and Chief Executive Michael Dell said, "We are seeing improvement in overall underlying IT demand that is continuing into the fourth quarter. The same is true with momentum in Dell's business," especially among corporate customers. And with the launch of Microsoft Corp.'s (MSFT) Windows 7, "we'll see the benefits of that more fully" this quarter.
The No. 2 player behind Hewlett-Packard Co. (HPQ) has been feeling the downturn longer than most companies, largely because the corporations that account for 80% of its revenue were among the first to cut back. Three months ago, Chief Financial Officer Brian Gladden said demand had stabilized but a significant uptick was unlikely until 2010.
To deal with the slump in personal computers, Dell has been diversifying. Its biggest move was the $3.9 billion acquisition earlier this month of Perot Systems Corp., giving it a broader reach in the services business. Dell, which has said other deals aren't out of the question, is also moving into smartphones, one of the hottest areas in consumer electronics.
For the quarter ended Oct. 31, the computer maker reported earnings of $337 million, or 17 cents a share, compared with $727 million, or 37 cents a share, a year earlier. The latest quarter included 5 cents in restructuring charges.
Net revenue fell 15% to $12.9 billion, hurt by a 17% drop in product revenue.
Earnings were down 29% from the fiscal second quarter, but the revenue picture was more promising with a 1% sequential increase.
Analysts polled by Thomson Reuters expected per-share earnings of 28 cents on revenue of $13.18 billion.
Gross margin fell to 17.3% from 18.8% amid the sales woes.
Revenue for desktop personal computers fell 26%, while the mobility segment, mainly notebook computers but also other mobile devices, had a 14% decline.
By customer segment, sales to large enterprises had the biggest decline, at 23%, followed closely by a 19% drop for small and medium businesses.
For the fourth quarter, Dell expects another sequential improvement in revenue, helped by seasonal improvement in the consumer business.
- By Jay Miller, Dow Jones Newswires; 212-416-2355; jay.miller@dowjones.com