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Dell Sees Better PC Sales Ahead Despite Drop in Profits
Dell Sees Better PC Sales Ahead Despite Drop in Profits

By Mike Kent
August 27, 2009 2:33PM

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An optimistic Dell beat analysts' estimates despite a 23 percent drop in profits for its fiscal second quarter. Like rival Hewlett-Packard, Dell expressed expectations for higher sales. Dell focuses on corporate clients and has reduced costs to be ready for pickup in IT spending. Sales of laptops fell less than sales of desktops in the quarter.

Dell said it sees better days ahead even as it reported a 23 percent drop in its fiscal second-quarter profit on Thursday. The company echoed larger rival Hewlett-Packard, which last week reported a 19 percent drop in profit but also expressed optimism.

Despite the earnings drop to 24 cents a share or $472 million for the quarter, Dell beat analyst expectations of 23 cents a share. Earnings in the year-ago quarter were 31 cents a share or $616 million. Revenue slipped 22 percent to $12.76 billion.

The results pushed Dell's stock up in after-hours trading. CEO Michael Dell said, "If current demand trends continue, we expect revenue for the second half of the year to be stronger than the first half." He added that Dell has lowered operating costs to be ready for an improving market.

Dell depends on corporate clients for 80 percent of its revenue. With IT spending down, Dell has felt the economic downturn longer than many companies.

Desktop PC sales fell 33 percent, Dell said, while the sales decline for laptops and mobile devices was 21 percent.

One reason for Dell's optimism is that the third quarter traditionally brings higher demand from back-to-school shoppers and the U.S. government. But demand from commercial customers is traditionally weak in the quarter.

Unlike HP, about 60 percent of Dell's revenue comes from PC sales. Such sales make up about a third of HP's revenue.

Dell expects to reduce costs by $4 billion over two years and is investigating new markets, including a reported mobile-phone venture in China and other mobile devices.

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