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Falling PC Sales Drag Down Profit for Dell
Falling PC Sales Drag Down Profit for Dell
By Barry Levine / NewsFactor Network Like this on Facebook Tweet this Link thison Linkedin Link this on Google Plus

Dell is feeling the continuing weak market for PC 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 solutions. The company reported that revenue in the fiscal period ending the first week in August decreased 8 percent, while profit dropped 18 percent.

'Wait and See'

In July, Dell announced it was buying corporate computer systems vendor Quest, and in May it bought Wyse Technology, which provides cloud-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 increased 3 percent.

'Not the Least Surprised'

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's new Windows 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 market. The company will be releasing a Windows 8 tablet.

He said that, while the enterprise 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 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 is causing, given that its Macs are also seeing slower sales.

Read more on: Dell, Earnings, Windows 8, PC, iPad
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