Dell profit falls 54 pct amid slump that has cut its ranking to No. 3 PC maker; shares hit

By Jordan Robertson, AP
Thursday, November 19, 2009

Dell profit falls 54 pct; report pulls shares down

SAN FRANCISCO — Dell Inc. said Thursday that its net income dropped 54 percent in the latest quarter amid signs the company isn’t fully benefiting from the computer industry’s fledgling recovery.

Dell’s numbers missed Wall Street’s forecasts, and the shares fell almost 6 percent in extended trading.

In the last quarter, Dell lost its ranking as the world’s No. 2 personal computer maker, a slot now held by Taiwan’s Acer Inc. Dell rivals such as Acer and Hewlett-Packard Co. have stolen market share in part by exploiting their bigger presence in retail stores. That has been a big weapon because consumer interest in little laptops called “netbooks” has helped the PC industry start to pull out of its worst slump in years.

Instead, Dell gets 80 percent of its business from corporations, government agencies and other large institutions, which have remained hesitant to spend money on new technology.

Dell said Thursday that it is seeing improvement in some areas, but repeated its earlier prediction that a meaningful rebound in technology spending by businesses won’t come until next year.

The company has said it is willing to lose some market share rather than lower prices too much. That is a key part of Dell’s strategy to improve its profitability — an effort that has included a huge restructuring.

Dell’s work force fell by 9,300 last year to 78,900 at the end of January, the last time Dell gave employment figures. The company also has changed the way it makes and sells computers, leaning more on contract manufacturers and retailers instead of doing everything in house.

Dell is also trying to expand into more profitable markets through acquisitions. The most significant is Perot Systems Corp., a technology services company that Dell is buying for $3.9 billion. The deal is a move against HP, which paid $13.9 billion for another services company, Electronic Data Systems Corp.

The changes haven’t been enough to lift Dell’s profit. Net income fell to $337 million, or 17 cents per share, in its latest quarter, which ended Oct. 30. That compares with $727 million, or 37 cents a share, in the same period a year ago.

Revenue fell 15 percent to $12.9 billion.

Analysts polled by Thomson Reuters expected Dell to earn 28 cents per share on $13.2 billion in revenue in the latest quarter.

Dell, which is based in Round Rock, Texas, said it expects revenue in the current period to be better than in the prior quarter, but it attributes that to the seasonal benefit of consumers buying PCs around the holidays.

Dell’s restructuring hasn’t won over investors. The stock has fallen more than 30 percent over the last two years. Its shares fell 92 cents to $14.95 in extended trading after the earnings report.

HP will provide more clarity on the computer industry’s health when it reports its quarterly numbers Monday. The company has already revealed preliminary results that topped Wall Street’s expectations and raised its 2010 guidance.

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