Tale of two Dells: Enterprise strong, consumer demand weak

Tale of two Dells: Enterprise strong, consumer demand weak

Summary: Dell's fiscal third quarter results highlighted the two sides of the company as corporate demand remained strong, but the consumer business was weak.

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Dell's fiscal third quarter results highlighted the two sides of the company as corporate demand remained strong, but the consumer business was weak.

As a result, the quarter was a mixed bag. Meanwhile, Dell's outlook for the fourth quarter is weaker than expected.

The company reported third quarter earnings of $822 million, or 42 cents a share, on revenue of $15.4 billion, up 19 percent from a year ago. Non-GAAP earnings were 45 cents a share. Wall Street was expecting earnings of 32 cents a share on revenue of $15.75 billion.

Dell credited strong commercial demand and solid supply chain management for the better-than-expected earnings results. The catch: The consumer is sucking wind.

Indeed, Dell projected revenue that is slightly up to flat with the third quarter tally. Wall Street was expecting much better sales. In fact, analysts were looking for sales of $16.28 billion.

Simply put, Dell's consumer business is the weak link right now. Consumer revenue was $3 billion in the third quarter, up 4 percent from a year ago. The unit broke even.

Highlights from the Dell conference call:

  • CFO Brian Gladden said the company had 20 percent gross margins due to "better supply chain execution, pricing discipline and broad component cost declines, which affected all of our lines of business from client hardware to services to software and peripherals."
  • Those component price declines will filter through to PC prices. "As these components cost declines work themselves through the industry supply chain, we do expect the industry pricing environment to more fully reflect these changes," said Gladden.
  • Steve Felice, head of Dell's consumer and small business unit, said "small businesses are beginning to see signs of strength."

In comparison to Dell's other units, the consumer business is clearly lagging despite the company's efforts to streamline brands, expand retail outlets and boost consumer loyalty.

To wit:

  • Dell's large enterprise revenue was $4.3 billion, up 27 percent from a year ago. Operating income was $400 million.

  • Public sector revenue was $4.4 billion, up 20 percent from a year ago including Perot Systems. Operating income was $451 million. In contrast to Cisco Systems, Dell was relatively upbeat about state and local government spending. However, Dell also noted that it had little exposure to local government customers.
  • Small and medium business revenue was $3.7 billion, up 24 percent from a year ago. Operating income was $391 million.

  • Revenue in Brazil, Russia, India and China was up 30 percent from a year ago.

In other words, Dell's quarter really only had one blemish---weak consumer spending. Dell had a few good data points on how the consumer business is improving, but it's still the weak link by far.

Topics: Dell, Banking, Enterprise Software

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13 comments
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  • Dell = Junk, consumers realize it.

    Consumers have woken up and realized that Dell = Junk.

    When your job depends on repairing and maintaining computers, you will buy the one that needs a little more fixing to justify your existence. That's why the enterprise is strong. Not because the machines are good. I've got a Precision M series that my work gives me. It's an utter POS compared to the HP I had before. Even the HP paled in quality to my personal Macbook.
    itguy08
    • RE: Tale of two Dells: Enterprise strong, consumer demand weak

      @itguy08

      A few years ago there was differentiation between computer makers. Now pretty much all computers are made from the same small pool of contract manufacturers in China using parts made from the same small pool of contract manufacturers.

      Due to this, quality now varies as much between product lines in a given company (like Dell, HP, and Apple) as it does between companies. You don't know who actually built it regardless of the label on the front.
      SlithyTove
    • RE: Tale of two Dells: Enterprise strong, consumer demand weak

      [i]I've got a Precision M series that my work gives me. It's an utter POS compared to the HP I had before.[/i]

      @itguy08
      I've been considering one of these. What issues have you been running into?
      ahh so
  • RE: Tale of two Dells: Enterprise strong, consumer demand weak

    Dell should focus on a tablet with android or win7 for prosumer market.
    dawlin.li@...
    • "prosumer" is there such a market for tablets?

      @dawlin.li@...
      As I understand the tablets history it's been around for what over a decade now and not made much of an impact until that is the iPad. Now I also think that during this past 10 years the tablets made available to the market were more or less "prosumer" in other words running Windows right? So in terms of the tablet has it been proven that the prosumer has any interest in the tablet? Also is there such a thing as the prosumer?

      Pagan jim
      James Quinn
      • RE: Tale of two Dells: Enterprise strong, consumer demand weak

        @James Quinn

        "Prosumer" despite the silliness of the word is real enough.

        As it turned out the prosumer really wasnt interested in the tablet offerings. At least at the ghastly price points they were sold at.
        SlithyTove
  • RE: Tale of two Dells: Enterprise strong, consumer demand weak

    Not too surprised on the two solitudes. You could stay on the phone waiting quite a bit of time before you actually speak to someone.

    I remember trying to change their base/cheapo mouse as it wasn't functioning. I'm sure it didn't cost them $5 to get it made. Was on the phone for 15+ minutes [going back and forward with an idiot/newbee] before I hung up and bought my own mouse.
    Gis Bun
  • Dell not so bad after all .....

    I Have a Vostro 1720 notebook that is good value for money - not spectacular but to rubbish either. Dell could do with a Workstation replacement Notebook at a price less than that of sever room though .... their power notebooks are priced insanely
    vhawk
  • Sill the best 2U server for the money.

    While their consumer product design is 'meh', they make an excellent line of rackmount servers at a price that is hard to match. The designs are efficient and servicable. If you know what you want, you can't beat ordering from their web configurator. In cases where we have taken the same 2U server requirements to HP and Dell, HP hasn't been able to come close on price.
    cameron@...
  • RE: Tale of two Dells: Enterprise strong, consumer demand weak

    Dells suck, didn't they hide the fact that they used subpar capacitors a while back? I think I read about the class action suit, then trying to deny warranties. Also, I turned my back on them, when they turned their backs on AMD. I will not do business with any company that practices and benefits from illegal monopolies as did Dell with Intel. Dell is turning into the "Target" of computers, meaning they are nothing but a glorified Emachines. (No offense meant towards Emachines, they make a good solid cheap computer.) Can you even customize Dell computers? Enterprise loves them because they are cheap. Now if my college would recognize that now about any boob can work on a computer and soon, all those IT degrees are going to be as good as a liberal arts major.
    trust2112@...
  • RE: Tale of two Dells: Enterprise strong, consumer demand weak

    Wonder why? Last year I ordered an XPS (no interest for a year but began charging it 2 months later & told me to prove otherwise) and external hard drive. HD paid for; never arrived; they sent a camera; emails ignored. XPS power unit failed 2 months later. Replaced, but wouldn?t fix software damage; I had to pay for that. Calls to customer service, in India, were useless. And now they?ve dinged my credit rating.
    bigargy@...
    • RE: Tale of two Dells: Enterprise strong, consumer demand weak

      @bigargy@...

      Send an email to Michael.Dell@dell.com and you will get a response from somebody. That is what I did when I had problems, and they were all sorted out.
      jorjitop
  • RE: Tale of two Dells: Enterprise strong, consumer demand weak

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