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November 16, 2012

PC slump sees profit fall 47% at Dell

Lack of presence in the mobile space is hurting Dell as well

By Steve Evans

Tech giant Dell has seen its quarterly profits collapse by 47% amid falling PC sales and the shift to mobile computing.

The company said PC sales to both consumers and businesses stalled during the quarter, which is due to a combination of people holding off for Windows 8 and the fact more people are doing their day to day business on a smartphone or tablet.

This is a particular worry for Dell as it is weak in both those sectors. The company told CBR earlier in the year that its smartphone future remains undecided while it is expected to make a big play in the tablet space, with Windows 8 devices on the horizon.

These struggles saw Dell record profit of $475m for the quarter, 47% down on the $893m recorded during the same quarter last year.

Revenue was also down, falling 11% to $13.7bn, below analyst expectations. Revenue from its consumer division fell 23% to $2.5bn, while sales to big businesses dipped 8% to $4.2bn. Public sector sales dropped 11% to $3.8bn.

Revenue fell 9% in the US, 11% in Asia-Pacific and Japan and 15% in EMEA, reflecting the faltering economy in this part of the world.

There was some good news for Dell. Enterprise services revenue was up 3% to $4.8bn, while server and networking revenue climbed 11%.

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Despite the gloomy quarter, Dell said it expects sequential revenue growth of 2% to 5% and has maintained its earnings-per-share outlook for the year.

The company has been busy expanding its portfolio away from just selling PCs. It has invested heavily in acquiring companies in the security, virtualisation and IT management space over the last couple of years.

However as Kate Hanaghan of TechMarketView points out, that strategy is struggling to make up for the rest of the faltering business.

"Dell’s traditional business is being hit from all angles. For some time it has been attempting to address this by shifting to higher value services and solutions. So far in 2012 it has invested $4.7bn in acquiring new capabilities and IP," she said.

"The growth trend in its Enterprise Solutions and Services business is positive when compared with the rest of the firm, however the problem is that growth in this business is quite clearly being offset by the declines elsewhere," Hanaghan added.

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