MOUNTAIN VIEW, Calif. — During past downturns in technology spending, Dell tended to boast about its ability to weather the conditions better than competitors bogged down by higher-priced goods and cumbersome business models.
In 2009, no such gloating has been heard.
Like its peers, Dell has watched as businesses and consumers have sharply curtailed technology purchases. The decline in sales has proved so severe that Dell’s earnings have fallen to the lowest level since 2002.
On Thursday, Dell reported that net income for the fourth quarter, ended Jan. 30, fell 48 percent, to $351 million from $679 million reported in the fourth quarter of the prior year. Revenue tumbled 16 percent, to $13.4 billion from $16 billion.
Excluding one-time expenses, Dell earned 29 cents a share, 3 cents better than the consensus forecast of Wall Street analysts, according to Thomson Reuters.
Instead of tough talk about trouncing competitors, Dell executives are focusing on their efforts to streamline the company.
The stronger-than-expected earnings reflect work done as part of a $3 billion cost-cutting program, which has included layoffs, the closing of manufacturing plants and a shift toward using contract manufacturers to build more of its laptops.
Dell, based in Round Rock, Tex., said Thursday that it would cut $1 billion more in annual costs over the next two years to improve the bottom line.
“We will be the first to admit that this is a work in progress, and there is more to do,” Brian T. Gladden, the company’s chief financial officer, told Wall Street analysts in a call to discuss the quarterly results.
Meanwhile, Dell’s 18-month effort to move away from personal computers and increase sales in potential higher-profit growth areas has stalled with the broader economy.
“They are doing what they can, but are basically still treading water,” said Richard Kugele, an analyst with Needham & Company.
The main drag on Dell’s revenue came from plummeting desktop and laptop computer sales, which dropped 27 percent and 17 percent, respectively. Sales of Dell’s servers, software and services also fell, leaving storage products as the only area of growth.
Michael S. Dell, the company’s founder and chief executive, insisted that it had made progress as part of a turnaround effort he started in 2007.
“Our strategy is to develop disruptive technology and innovation and shift our business to higher margin products and services,” Mr. Dell said on the call.
But in fact, Dell’s overall business appears very similar to what it was last year.
For example, servers and higher-profit services and software account for the same overall percentage of Dell’s revenue as they did last year. And despite making its way into 24,000 retail outlets, Dell derives only 2 percent more of its revenue from consumer sales than it did a year ago.
Investors may give Dell some leeway with its long-term transition given the state of the economy, which makes growth and expansion into new markets difficult. Still, they are demanding that Dell maintain profits in the near term as it chases changes in strategy.
“I think the issue is that their profitability today is much lower than it was historically,” said A. M. Sacconaghi, a securities analyst with Sanford C. Bernstein.
Dell’s once-vaunted direct sales model continues to trail the overall profitability of Hewlett-Packard’s PC operation, Mr. Sacconaghi said.
Competitors like Hewlett-Packard and I.B.M. have also proved better equipped to deal with stagnant hardware orders because of vast services businesses, software sales and long-term contracts with customers.
Shares of Dell fell 15 cents, to $8.21 Thursday, before the earnings announcement. In after-hours trading, Dell shares rose more than 1.8 percent, to $8.36.
No comments:
Post a Comment