Dell cuts outlook in 'uncertain environment'

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

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

(Credit: Dell)

Specifically, Dell said that it will see better profit growth with non-GAAP earnings up 17 per cent to 23 per cent, but sees a "more uncertain demand environment". As a result, Dell said that its fiscal 2012 revenue growth will be 1 per cent to 5 per cent, down from its previous expectation of 5 per cent to 9 per cent. 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 per share on revenue of US$16.18 billion.

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

Wall Street was expecting earnings of 39 cents per share on revenue of US$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 that 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.

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 US 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 that the corporate upgrade cycle remains intact. 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 mid-market demand.
  • Anderson said that 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 organic and inorganic investments are being made with a mid-market design focus," said Dell.
Dell's outlook

(Credit: Dell)

Here's the unit breakdown by the numbers:

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

Via ZDNet US


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