Falling PC Sales Drag Down Profit for Dell
Dell is feeling the continuing weak market for PC Relevant Products/Services sales. On Tuesday, the Round Rock, Texas-based company said it was cutting its profit outlook by 20 percent for next quarter.
Sales of desktops and laptops still account for about half the company's revenue, even as it is buying businesses to bolster its capacities for storage, networking, and software Relevant Products/Services solutions. The company reported that revenue in the fiscal period ending the first week in August decreased 8 percent, while profit dropped 18 percent.
In July, Dell announced it was buying corporate computer Relevant Products/Services systems vendor Quest, and in May it bought Wyse Technology, which provides cloud Relevant Products/Services-based desktop devices.
The company is projecting that revenue in this quarter, which ends in October, will drop 2 percent to 5 percent compared with the previous quarter. Second-quarter net revenue dropped to $732 million from $890 million in the same quarter last year.
Only 18 percent of Dell's total revenue comes from sales to consumers, but about half comes from PCs. Across the industry, PC sales are flat, and Dell has said that its sales from PCs and related products dropped 14 percent in the second quarter compared with last year.
The company is, however, experiencing growth in some non-PC areas. Its storage devices, for example, showed an increase of 6 percent in the second quarter, following three quarters of 20 percent increases. Servers and networking products grew 14 percent compared with last year, and its services business Relevant Products/Services increased 3 percent.
Avi Greengart, an analyst with industry research firm Current Analysis, said he was "not the least surprised" about Dell's drop. He noted that a key factor in the declining sales of PCs is the coming public release of Microsoft Relevant Products/Services's new Windows Relevant Products/Services 8, and both business and consumer customers are waiting to make computing purchases until the new OS comes out in October.
Greengart also pointed out that tablets, "specifically Apple's iPads," are cannibalizing sales of PCs, and that Dell is not currently participating in the tablet Relevant Products/Services market. The company will be releasing a Windows 8 tablet.
He said that, while the enterprise Relevant Products/Services market is more stable for Dell, it remains to be seen if the launch of Windows 8 will lead to substantially increased PC or tablet sales there.
"A lot of companies have no plans to jump into Windows 8," Greengart said, given such additional needs as retraining of workers and new IT Relevant Products/Services support.
Ross Rubin, principal analyst at Reticle Research, pointed out that predicting whether or not PCs will continue to slump depends, in part, "on what PC means" these days. He noted that, in addition to tablets, Windows 8 is expected to help engender a variety of new form factors, such as combined tablet/laptops.
Rubin also noted that Apple is not immune to the havoc its own iPad Relevant Products/Services is causing, given that its Macs are also seeing slower sales.