Dell's U.S. sales fall, profits disappoint
SAN FRANCISCO -- Dell dell reported lower-than-expected quarterly net income Thursday in part because it is losing money on every U.S. consumer PC it sells.
Sales in Dell's U.S. consumer division fell 6% in the computer maker's fiscal third quarter, which ended Nov. 2. Dell didn't say how much money the unit lost.
Problems included a "failed back-to-school product launch," says tech analyst Samir Bhavnani of research firm NPD. Dell announced a line of new products, including brightly colored laptops, then had trouble filling orders.
Such problems might help explain why once-dominant Dell continues to lose market share to rivals, such as Hewlett-Packard hpq, and why its results disappointed Wall Street.
Revenue of $15.6 billion rose 9% from $14.8 billion a year ago. But the benefit didn't translate into a big boost in profits. Net income of $766 million, or 34 cents a share, rose from $601 million, or 27 cents a share, a year ago.
(The numbers included a tax benefit, plus charges relating to layoffs, cutbacks and an accounting restatement announced earlier this year. Combined, the credit and charges lowered net income by 1 cent.)
The news, released after the market closed, sent Dell shares tumbling 9.7% to $25.42 in after-hours trading.
Its shares tumbled $3.80, or 13.5%, to $24.33 in afternoon trading Friday.
"People were looking for them to tighten the reins," said equity analyst Brent Bracelin at Pacific Crest Securities.
Dell executives agreed. Costs "are still considerably higher than we want (them) to be," Vice Chairman Donald Carty said on a much-anticipated conference call. "We are confident that we can run this business more efficiently."
Carty and CEO Michael Dell fielded questions from analysts Thursday after canceling several similar meetings in the past year. The company cut back its financial disclosures after revealing accounting problems related to how it recognized revenue. Dell restated several years of earnings last August, but it remains under investigation by the Securities and Exchange Commission.
Michael Dell used the conference call to lay out his turnaround plans — including more emphasis on laptops, which are becoming more popular than desktops. Laptops account for about 30% of Dell's sales.
Dell, which once sold mainly online and through catalogs, will continue to expand partnerships with retailers. It recently announced programs to sell PCs in Wal-Mart, Staples and several international stores.
The company also plans to offset weakness in the USA by expanding aggressively in emerging markets such as Russia and China, Michael Dell said. Brazil posted a 45% jump in sales in the quarter, while sales in India rose 47%.
But some analysts remained unconvinced, especially because Michael Dell and other executives kept referring to growth in the long term. That likely means "profits won't grow much anytime soon," says tech analyst Roger Kay at Endpoint Technologies Associates.
More job cuts could be on the way, too. Dell said in May that it would trim its staff to about 79,200, a reduction of 10%, within 12 months. Dell currently employs about 81,900 people.
Carty said Dell still stands by those numbers. But acquisitions might cause staff to increase in some cases. He declined to provide details.
Dell also plans to spend some of its $12 billion cash hoard, Carty said. Acquisitions and stock buybacks are among the possibilities, he said.