Dell's Q3, outlook a mixed bag amid weak demand, hard drive shortage

"Given the uncertain macroeconomic environment and complexity in working through the industry-wide hard drive issue, the company is trending to the lower end of the range of its revenue outlook," says Dell.

Written by Larry Dignan, Contributing Editor on Nov. 15, 2011

Dell reported better-than-expected third quarter earnings, no revenue growth, and provided an anemic revenue growth picture for the fiscal year.

The PC maker reported fiscal third quarter earnings of $893 million, or 49 cents a share, on revenue of $15.36 billion, flat with the same quarter a year ago. Non-GAAP earnings were 54 cents a share.

Wall Street was expecting non-GAAP earnings of 47 cents a share on revenue of $15.65 billion.

As for the outlook, Dell said its operating income targets for the fiscal year---17 percent to 23 percent growth---will be met, but revenue growth will be sluggish. The company said:

Given the uncertain macroeconomic environment and complexity in working through the industry-wide hard drive issue, the company is trending to the lower end of the range of its revenue outlook of 1 to 5-percent full fiscal-year growth.

Dell's outlook was largely expected. Analysts predicted that Dell may take its lumps in the fourth and first quarters due to supply chain issues. See: Dell's third quarter: All eyes on the supply chain

CEO Michael Dell said that the company is focused on growing its enterprise storage, server and networking business as well as moving toward on-demand software. The company is posting double-digit growth rates in emerging markets and its enterprise business and investing in research and development.

"We’re now investing in research and development activities at almost a billion-dollar annual run rate and our earnings per share is up 86 percent over the last 12 months," said Dell.

By the numbers:

Enterprise solutions and services revenue was $4.7 billion, or 31 percent of revenue. Server and networking revenue was up 13 percent in the third quarter.

Dell-branded storage third quarter revenue---EqualLogic and Compellent---was up 23 percent from a year ago.
Services revenue in the third quarter was up 10 percent from a year ago to $2.1 billion.
Large enterprise revenue was up 4 percent from a year ago to $4.5 billion with operating income of $441 million.
Public sector revenue was $4.4 billion, down 2 percent from a year ago, with operating income of $463 million. Dell said spending was slow in the U.S. and Western Europe.
SMB revenue was $3.7 billion, up 1 percent from a year ago, with operating income of $386 million.
Consumer revenue fell 6 percent to $2.8 billion in the third quarter with operating income of $76 million.
China revenue was up 23 percent in the third quarter. Brazil, Russia, India and China (BRIC) revenue overall was up 14 percent.