Dell: Q1, outlook weak; Cites 'challenging environment'

Dell: Q1, outlook weak; Cites 'challenging environment'

Summary: Dell's results were weak across the board in the first quarter as large enterprise, public sector and consumer sales fell. Even Dell's BRIC sales growth was weak.

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Dell's first quarter came in below expectations and its outlook was weak. In other words, Dell's race to transform itself to a company with more software and services couldn't outrun weak hardware spending.

The company reported first quarter earnings of $635 million, or 36 cents a share, on revenue of $14.42 billion, down 4 percent from a year ago. Non-GAAP earnings were 43 cents a share. Wall Street was looking for earnings of 46 cents a share on revenue of $14.9 billion. Dell had a bevy of wild cards entering its first quarter report, but Wall Street wasn't expecting a clunker of this magnitude.

For Dell, growth was weak to negative across its key units. Large enterprise revenue fell 3 percent; public sector sales dipped 4 percent and consumer revenue fell 12 percent. Dell was down in most regions except China. Even Brazil, Russia, India and China (BRIC) growth was a mere 4 percent.

Specifically, Dell said that it saw a good large enterprise pipeline, but IT spending was being delayed.

As for the outlook, Dell said that it expects second quarter sales to be up about 2 to 4 percent in the second quarter. Wall Street was expecting a larger jump to $15.4 billion in second quarter revenue.

The results indicate an overall slowdown in IT spending. Worries about corporate technology spending will only increase after Dell's prognosis and Cisco’s outlook.

Dell CEO Michael Dell said the company's transformation into one based on end-to-end IT is ongoing. Dell also noted that PC upgrades will slow ahead of Windows 8. Dell said:

We are totally lined up around the launch of Windows 8. Corporations are still adopting Windows 7 so we don't think there's going to be a massive adoption of Windows 8 by corporations early on. Certainly the addition of touch capability into Windows 8 will be welcome.

CFO Brian Gladden added on an earnings conference call:

Our first-quarter results were mixed and we fell short of our own expectations. There were some areas where execution was not as expected, and there were also market dynamics that created some headwinds. We want to be clear that we remain committed to our strategy and we want to acknowledge that our progress will not always be linear.

Steve Felice, Dell's chief commercial officer, also added that businesses are going with mobile devices over PCs.

We are also seeing some IT spending prioritize to purchase other mobile devices. Now this is mostly a consumer dynamic that there is clearly some impact in areas of commercial as well.

Shares of Dell fell 10 percent in after-hours trading.

By the numbers:

  • Dell enterprise solutions and services revenue was up 2 percent in the first quarter to $4.5 billion.
  • Services first quarter revenue was up 4 percent to $2.1 billion.
  • Large enterprise revenue fell 3 percent to $4.4 billion in the first quarter with operating income of $402 million.
  • Public sector revenue in the first quarter was $3.5 billion, down 4 percent. Operating income was $271 million.
  • Dell delivered consumer revenue of $3 billion in the first quarter, down 12 percent. Operating income was $32 million.
  • EMEA revenue fell 1 percent; Americas dropped 7 percent and Asia-Pacific and Japan sales were flat. China was up 9 percent in the first quarter, but BRIC revenue overall gained 4 percent.

Topics: Banking, Dell, Emerging Tech, Enterprise Software

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8 comments
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  • Advice for Mikey Boi

    Close up shop and return the money to the shareholders.

    You make $hit in everything you do and always have and always will. Love to see Dell faltering.
    itguy10
    • Yeah.. no. Not likely a successful business man who built a company from

      nothing to $60B a year is going to take the advice of a no account living in his moms basement.
      Johnny Vegas
      • mikey's got money but constantly reminded he'd been a major dumbo..

        ... not to mention totally arrogant concerning apple ("they should close down and return the money to the shareholders") must hurt. (apple by marketcap is 20 times larger than dell now).

        when you have lots of money perhaps you want some 'respect' as well (instead of being a constant butt of jokes) ?

        I bet in every shareholder meeting not to mention cocktail parties he's been asked about his arrogant pronouncements ...
        Davewrite
      • Sure, here's the logic

        1. You're in a commodity business with ever shrinking product margins and increasing support costs. Your business is tied to the success or failure of another company (Microsoft). Best to exit that (see IBM, HP).

        2. Your company is associated with cheap junk (see declining satisfaction ratings) and you really have nothing to offer other than cloned hardware. IE: Little to no R&D. Ask the owner of www.dslreports.com how picking a cheap Dell storage array cost him a couple weeks downtime (as in offline) and loads in recovery costs.

        3. Your company has no direction on the post-PC era. Tried PDA, Smartphone, and Tablets before and failed each time.

        4. You are trying to expand to services (like IBM) but your name is associated with cheap junk so that is difficult.

        Dell trying to reinvent itself would be like Wal-Mart saying it's starting to sell Champagne, Caviar, and Rolls Royces. Stupid plan and destined to fail.

        Dell's best bet would be to sell out and exit the business. Like what HP was thinking of doing....
        itguy10
  • I wonder is this unique to Dell or the "PC" industry as a whole?

    Pagan jim
    James Quinn
  • Sounds about right....

    Transforming from a hardware player to a services player isn't an overnight journey. But they could at least mitigate that by showing some inclination to diversify operating systems on the tablet side. Putting your entire hardware business in the hands of a company that has so far been wildly unsuccessful in its mobile pursuits is about as foolhardy as it can get.

    http://www.tech-thoughts.net/
    sameer_singh17
  • Maybe Dell could fix their website ?

    Did anyone from Dell ever tried using their website? It is a disaster. Let's say I am an old-fashioned guy and I want a desktop computer. I cannot just go and select computer I have to know if I am small business, big business or consumer. Why do I have to choose? And even if I go searching through all categories I find a frustrating combination of hardware where video card that I want is available only on "consumer", hard drive on "small business" and memory on some other model that does not give me any choice of video or hard disk. Dell is playing some kind of weird game on their website. Maybe it is logical from supply and manufacturing side but for regular consumer it looks like a company that just does not know what they are doing.
    paul2011
  • It's a hard time being a hardware company in the VM revolution

    I would wager that most of Dell's income comes not from consumer products. I would say most of Dell's sold go to enterprise as workstations for employees, or Server equipment. Server equipent is probably has the most profit margin, as low end desktop computers would probably have the least profit margin.
    The problem is alot of companies are going virtual. Virtualiztion has made it easier for companies to consolidate their servers. This reduces the amount of hardware needed, and services and warranties attached to those hardware. It decreases overal IT costs for a corporation, but it decreases the revenue stream for companies like DEll. This is why IBM is focusing on services as they want to be first in line for cutting edge opportunities.

    Cloud services will pinch companies like DELL even more because now medium to small buinesses can rely on a service that does not even need to be loacated in a specific area. In the past 3rd party local companies provided IT services to the small to medium sized businesses in their city or region. They Intalled, configured, and managed Dell, Cisco, HP, and IBM hardware on or off site for thier customers. Cloud services if success as planned would eliminate the need for these small 3rd party companies for a much larger cloud services orginazation which can service pretty much any customer nationaly or even globally. Dell would need to make hardware contracts to companies that provide IT services. But what if the cloud service belongs to HP or IBM?

    It's just time to think outside the box and come up with a service that people will use for years to come.
    Bakabaka