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

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.
Written by Larry Dignan, Contributor

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.

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