Dell cuts sales outlook, cites 'uncertain demand environment'

Dell cuts sales outlook, cites 'uncertain demand environment'

Summary: Dell has been able to keep profits humming even as growth slows. The company sees slower sales growth ahead.

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Dell reported better-than-expected second quarter results, but cut its revenue outlook for the rest of its fiscal year.

Specifically, Dell said it will see better profit growth with non-GAAP earnings up 17 percent to 23 percent, but sees a "more uncertain demand environment." As a result, Dell said its fiscal 2012 revenue growth will be 1 percent to 5 percent, down from its previous expectation of 5 percent to 9 percent. Third quarter revenue will be flat with the second quarter.

That flat sequential revenue forecast is well below estimates. Wall Street was expecting earnings of 45 cents a share on revenue of $16.18 billion.

The outlook overshadowed a solid second quarter from Dell even though revenue was light. Dell reported net income of $1 billion in the second quarter, or 48 cents a share, on revenue of $15.66 billion. Non-GAAP earnings were 54 cents a share.

Wall Street was expecting earnings of 39 cents a share on revenue of $15.76 billion. Analysts had expected weak consumer demand to curb revenue growth, but boost profit margins.

In its statement, Dell said that enterprise demand---the sector that drives its financials---remained solid, but the sales pipeline weakened in the last few weeks. It's clear that the demand environment is weaker and a bit more uncertain than what we had in our previous view," said CFO Brian Gladden.

Also: Dell: Does it need a better answer to tablets?

Gladden added:

We saw some weakening in parts of the market in the second half of the quarter that I would say we've seen continue. That would be the things we highlighted, the U.S. consumer market clearly and the federal business. It has clearly been a bit softer in the last few weeks and obviously we're monitoring that as we move throughout the quarter.

CEO Michael Dell, however, said the corporate upgrade cycle remains in tact. Those investments usually play out over multiple quarters, he added.

On a conference call, Gladden and Brad Anderson, senior vice president of Dell's enterprise business, made the following points. Michael Dell also talked strategy.

  • Dell will continue to invest in its sales footprint. "We're also significantly increasing investment levels in our sales and go to market capabilities across the business. These investments are substantial and are now contributing to our growth, shifting our mix and improving our operating income," said Gladden.
  • "Our core business remains healthy and we continue to see solid demand for our server, Dell storage, and services businesses. As we continue to execute on our cost initiatives across the business and focus on higher value products with Dell owned intellectual property throughout our business, our product margins remain strong and contributed to outstanding operating income and excellent cash flow generation this quarter," said Gladden.
  • Servers and networking gear continues to benefit from a corporate upgrade cycle and strong midmarket demand.
  • Anderson said the company will focus on the long run even if IT demand stumbles.
  • Dell said that the company is transforming its product and business mix and views acquisitions as a way to bolster research and development. "We know the values created not by acquiring companies but rather by successfully integrating them along with continued investments in Research and Development and sales capabilities. It's early, but we're building a strong track record of successful integrations. Both are organic and inorganic investments are being made with a mid market design focus," said Dell.

Here's the unit breakdown:

By the numbers:

  • Large enterprise revenue in the second quarter was up 1 percent from a year ago. Operating income for the unit was $448 million.
  • Public sector revenue for the second quarter was $4.5 billion, down 3 percent from a year ago. Operating income checked in at $484 million.
  • Second quarter SMB revenue was $3.7 billion, up 5 percent, with operating income of $404 million.
  • Consumer revenue was $2.9 million, up 1 percent. However, operating income was $73 million, a sum that lags other units by a wide margin.
  • Dell's commercial business delivered second quarter sales of $12.8 billion, up 1 percent from a year ago. Dell services revenue was $2 billion in the second quarter, up 6 percent from a year ago.
  • Dell-owned storage sales gained 15 percent in the second quarter compared to a year ago. The company cited strength for its midmarket EqualLogic gear.

Topics: Dell, Banking, Emerging Tech, Enterprise Software

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23 comments
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  • If Dell would stop making junk,

    Maybe they would turn things around.

    Oh, that's right, Dell never nade anything quality in their history.
    itguy10
    • Yes they do. Sorry you don't see it

      @itguy10
      but basing your entire statement on that single Dell computer you bought that broke down after a year isn't actually a good statistical reference.

      Odd that so many large companies happily buy from them.

      I still have 7 year old Dells running fine. Not counting the 4 bulging capacitor systems that died (the same issue Apple and HP had) I've lost 5 machines since 2003, and 3 of them where due to outside forces, and one was fixed with an aftermarket video card.
      William Farrell
      • RE: Dell cuts sales outlook, cites 'uncertain demand environment'

        @William Farrell

        Except it's not that.

        It's the POS Dell that I've had from work that's already starting to show signs of wear after a year. (My previous HP looked good after 3)

        It's the POS Dells at work that are built like garbage - wavy keyboards, fake metal, etc. Pick it up on the corner and you can see it flex.

        Companies buy from them because they are cheap. Not because they are good. They have an IT staff to deal with the many breakages.
        itguy10
      • So he's right

        You are basing it off ONE COMPUTER.
        Michael Alan Goff
      • RE: Dell cuts sales outlook, cites 'uncertain demand environment'

        @William Farrell I am with itguy here... I have had 3 dells in 3 years from my company... The max life for a dell is like 1 year... I have also seen my friend's dell dead in less than a year... No one consumer would think of buying a dell computer... Apple, HP and Sony is what that come to the mind... and these days, I see even our company is moving away from crappy dells
        browser.
      • Over the past 10 yrs

        I have had 2 Dells.

        I was even able to up the RAM and put Vista on the XP machine, because everything else was alright.

        The other didn't need an upgrade, and was bought roughly 4 years ago. It still works perfectly today.

        Maybe it's the user.
        Michael Alan Goff
      • So what am I doing differently to have good success with Dels?

        @itguy10

        I'm talking 43 computers here, 2 of them servers. Now, I'm not counting the bad HD's ect (they are the same as HP, Acer, Apple use) but the hardware itself.

        I don't have the problems with them you do, so what is it I'm doing wrong to make them last?
        William Farrell
    • RE: Dell cuts sales outlook, cites 'uncertain demand environment'

      @itguy10 agree to a certain extent....some of their products, for example, their laptops, except XPS, are garbage. They don't have form factor, neither do they keep up with market pace in terms of hardware. They sell cheap quality hardware too. Hence, people tend to stay away from them, once they find out the truth.
      animageofmine1
  • Is this unique to Dell?

    Or have others PC OEM's said pretty much the same thing?

    Pagan jim
    James Quinn
  • Here's a link to the full report

    http://www.slideshare.net/Dell/dell-q2fy12-earnings
    jboutelle
  • Dell is junk.

    I'll never EVER buy a Dell again!
    MSFTWorshipper
  • RE: Dell cuts sales outlook, cites 'uncertain demand environment'

    If I was Michael Dell, I'd sell the company and give the money to the stock holders.
    gtdworak
  • Demand is there.

    Demand just can't afford it due to those who still have jobs getting to deal with pay cuts, while cost of living (and education that tells the <i>claim</i> of higher wages)...

    Also, I've heard stories of offshored call center and other jobs coming back. Just nowhere near the same pay levels. There's an incentive to go back to that line of work, which I left because of the amount of sheer stress being in that position gets. And, no, I don't read from a script. I actually KNOW the materials. Amongst other things.
    HypnoToad72
  • RE: Dell computer

    I actualyl prefer Dell computers, i only buy the optiplex line for desktops, the others are cheapy ones for home consumers, but all the brands do that, especially HP (they bought out even crapp*er Compaqs). Sony's are retarded expensive at that point buy yourself a mac

    Dell has a big advantage on the Optiplex lines for business because they last longer, i've seen Optiplex 160L's from 99-2001 still at companies working away.

    The other major advantage, especially for real IT people is the 1 CD to re-install the operating system on all Dell models that support that version of windows. That's why you have more flexibility on having different Dell model numbers.

    IF you had 20 different models of HP computers at your office, your IT guys have to keep 20 different OS install CD's, if you even get them anymore to re-install windows on those boxes.
    ajapierce
    • RE: Dell cuts sales outlook, cites 'uncertain demand environment'

      @ajapierce actually, if you have OS install CDs, regardless of what OEM you are using, you're doing it wrong. No automated OS install, including having the appropriate drivers installed? You can do a WMI query to get the computer model during an unattended install to copy down the appropriate driver pack, if need be.

      We've looked at both recently where I work. Yep, the driver packs are better on the Dell's, but you can work around it. The cost differential for us was the kicker. Based on our expected spend over the next year, we were able to save tens of thousands of dollars by going with HP. More then enough to make up for the little bit of extra work our deployment engineers need to do to get the HP systems up and running.

      Not to mention their high end storage is crap. Any idea how many TB you can put behind a set of their best controllers? 90. Yep, 90TB. If you want to put 1PB of storage in...how many controllers do you need???? Yes, that's right. 22 controllers. Awesome, eh? I'll stick with the real storage vendors for Enterprise class storage. When Dell can actually be bothered to show up on the Gartner Enterprise Class Storage report, call me. Until then, I'll just view them as the people who sell SAN equipment to companies without real storage engineers.
      icouldbeKramer
  • Translation: Our poor quality is finally catching up ....

    Dell PC are some of the WORST in the planet. Companies pay a premium for a PC and when the IT guys open the box, they find cheap parts and:
    - (Sometimes) NO CPU FAN. Just a plastic funnel connected to the back PC fan.
    - PSU with power below required per hardware spec.
    - Generic, low quality memory.
    - Cheap/generic brand hard drives.
    - Partially drained CMOS batteries (ie: they don't last long)
    wackoae
  • Dell, HP both are worst..!

    For that matter, even after IBM sold it to Lenova, it's still in better Quality than Dell/HP laptops.
    jinishans
  • I am scared of ever buying a DELL again

    Had a Dell laptop a few years ago, died within 3 years, have an Acer, been going strong since 2006 (5 years).
    adacosta38
  • RE: Dell cuts sales outlook, cites 'uncertain demand environment'

    Absolutely correct! Dell has sold on cheap price from the very beginning and has NEVER been a qaulity product - I would never sell one to a customer!
    edmundbligh
  • RE: Dell cuts sales outlook, cites 'uncertain demand environment'

    Turn everything around.
    You are getting a present of a free computer and you have a choice of anything you want. Price is no longer a consideration, capacity, no problem, style, size, color, more free choices. So, what do you get? Remember that this is ANYTHING you want. Does the name "Dell" pop into your head first?
    This brings up two observations: If "Dell" is the first name that popped into your head, then their advertising has done its job and you believe it. If "Dell" was not the first name that popped into your head, then someone else's advertising has done its job and you believed that instead. So, your free choice boils down to which advertising did you believe? What about computer quality? Well, the vast majority of you don't actually know anything about computer quality, do you?
    Advertising gives you the illusion that you understand your needs. The product is the easy way to meet those needs and give you the joy of victory for the correct choice. And what about the product in all this. "Oh. I'm going to buy version 2 as soon as it comes out."
    trm1945