Dell's out­look dis­ap­points as PC mar­ket fal­ters

The Pak Banker - - COMPANIES/BOSS -

Dell Inc warned of a chal­leng­ing sec­ond half and slashed its full-year earn­ings out­look as cus­tomers cut back on com­puter pur­chases ahead of the launch of Mi­crosoft's Win­dows 8 soft­ware, send­ing its shares down more than 4 per­cent.

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 Acer Inc and Len­ovo, and the fast- grow­ing adop­tion of tablets like Ap­ple Inc's iPad.

Founded by Chief Ex­ec­u­tive Michael Dell, it is in the midst of a turn­around, jug­gling ac­qui­si­tions to bol­ster growth with the need to fat­ten mar­gins by trim­ming ex­penses even as global tech spend­ing ap­pears to be slip­ping. In May, it warned that global tech spend­ing is weak­en­ing faster than an­tic­i­pated.

The No. 2 U.S. PC maker fore- cast rev­enue would slide 2 per­cent to 5 per­cent in the fis­cal third quar­ter from the sec­ond, to $13.8 bil­lion to $ 14.2 bil­lion. That lagged Wall Street's tar­get of $14.85 bil­lion.

It is pre­dict­ing earn­ings per share of "at least" $1.70 for fis­cal 2013, com­pared with a pre­vi­ous forecast for more than $2.13.

"Peo­ple had al­ready ex­pected them to take down num­bers, but I think the level to which they are tak­ing down num­bers is pretty se­vere com­pared to ex­pec­ta­tions," said Cross Re­search an­a­lyst Shan­non Cross.

Dell Chief Fi­nan­cial Of­fi­cer Brian Glad­den said in an in­ter­view the com­pany tem­pered its out­look for the third quar­ter partly be­cause it ex­pects dis­trib­u­tors to hold off on buy­ing new com­put­ers be­fore the late-Oc­to­ber re­lease of the latest ver­sion of Mi­crosoft Corp's Win­dows op­er­at­ing sys­tem.

"Threv­enue de­te­ri­o­ra­tion we saw in the quar­ter was clearly above any- thing we ex­pected," he told an­a­lysts on a call.

To shore up mar­gins and gen­er­ate rev­enue growth, Dell is try­ing to ex­pand fur­ther into en­ter­prise com­put­ing, where it then goes up against larger ri­val Hewlett Packard.

It an­nounced that it had hired exHP net­work­ing chief Mar­ius Haas to head up its en­ter­prise so­lu­tions di­vi­sion and help has­ten its push into global ser­vices, con­firm­ing an ear­lier re­port

En­ter­prise so­lu­tions rev­enue rose 6 per­cent to $4.9 bil­lion or more than a third of over­all sales, while server and net­work­ing rev­enue climbed 14 per­cent. In con­trast, con­sumer rev­enue plum­meted 22 per­cent to $2.6 bil­lion, un­der­scor­ing the plight of the broader PC mar­ket.

Haas, who joined pri­vate eq­uity firm Kohlberg Kravis Roberts af­ter de­part­ing HP, re­places Brad

The im­mi­nent ver­sion of Win­dows is de­signed with touch­screen de­vices and In­ter­net-based com­put­ing in mind. An­a­lysts say it may give PC mak­ers like Dell, HP and Len­ovo a chance to win back mar­ket share lost to the iPad.

In June, Mi­crosoft took the wraps off the "Sur­face" tablet com­puter, which some an­a­lysts see as an at­tempt to demon­strate the ef­fec­tive­ness of Win­dows as a mo­bile plat­form.

But CEO Dell told an­a­lysts it could take a while for sales of the de­vice to ramp up, say­ing that he has heard es­ti­mates from Mi­crosoft that the new de­vices are likely to ac­count for just 1 to 2 per­cent of to­tal PC units shipped through the mid­dle of next year.

"The jury is out as to whether they will be able to im­prove their growth rates un­til they get some Win­dows 8 tablets out," Cross said.

Dell re­ported fis­cal sec­ond-quar­ter rev­enue of $14.5 bil­lion, be­low the $ 14.64 bil­lion an­a­lysts had ex­pected on av­er­age.

It posted net in­come of $732 mil- lion or 42 cents a share in the fis­cal sec­ond quar­ter, com­pared with $890 mil­lion or 48 cents a year ear­lier. Ex­clud­ing cer­tain items, it earned 50 cents a share, beat­ing an av­er­age forecast for 45 cents.

As part of a restruc­tur­ing, Dell in­tends to slash more than $2 bil­lion in costs over the next three years, pri­mar­ily from the sup­ply chain and sales group, as it sharp­ens its fo­cus on the tech­nol­ogy needs of cor­po­ra­tions.

Shares of the com­pany, which plans to pay its first div­i­dend to share­hold­ers this year, re­main down 15 per­cent in 2012, sup­pressed by dis­ap­point­ing quar­terly earn­ings and fears that mo­bile de­vices are erod­ing PC spend­ing.

The com­pany's stock fell to $11.78 in af­ter-hours trade. They had closed at $12.34 on the Nas­daq. HP stock was down more than 1.5 per­cent at $19.70 in ex­tended trade af­ter clos­ing at $19.93 on the New York Stock Ex­change.

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