SAN FRANCISCO, 20 NOVEMBER 2008 - Dell's revenue and net income dropped in its third quarter as the company tries to cope with a global IT spending slowdown and less demand for its products.
Revenue for the quarter that ended Oct. 31 was US$15.16 billion, a 3 percent drop compared to the third quarter of last year, and short of the $16.2 billion estimated by analysts polled by Thomson Reuters. Earnings per share were $0.37, besting analyst estimates of $0.31.
Net income dropped 5 percent to $727 million, but beat analyst estimates of $616 million.
Dell's consumer business had 10 percent revenue growth globally, while the commercial business had a revenue decline in the Americas and EMEA (Europe, Middle East and Africa) of 8 percent and 5 percent, respectively. Commercial laptop shipments had flat growth year-over-year, while server shipments dropped by 4 percent. Commercial revenue grew by only 2 percent in the Asia-Pacific and Japan region.
The global IT environment will continue to be challenging and Dell will try to adapt, the company said.
"Given the choice between profits and growth, we will go for profits," CEO Michael Dell said on a conference call with analysts.
Dell is in the midst of an effort to cut costs by contracting out parts of its business, cutting staff and other means. In April it said it wanted to save $3 billion by 2011 by reducing its headcount and sourcing cheaper materials and components.
The company has started a temporary hiring freeze, though there will be some hiring to meet specific needs, CFO Brian Gladden said on the call. Dell has already shut down some manufacturing plants and customer service centers around the world this year to reduce costs.
Dell is finding that customers in emerging countries are willing to spend on its products. In the BRIC countries -- Brazil, Russia, India and China -- revenue increased 20 percent year-over-year, while unit shipments increased 43 percent.
Dell said it would take a cautious approach to the coming quarters and act conservatively. Product lines that deliver higher margins will be introduced in favor of lower-margin products, Michael Dell said.
The company has decided to keep its Financial Services unit, which it had put up for sale earlier this year. It is a profitable unit for Dell despite the economic environment, Gladden said.
Asia shines for Dell despite economic downturn
Dell has posted strong revenue and profit growth in Asia, even as the company saw its global revenue and profits decline in its third quarter, which ended October 31.
Encouraged by the growth in the region, the company is planning more investments in call centers in India, and research and development in China. The extent to which it will invest, however, will depend on how the global economic climate shapes up, said Steve Felice, president of Dell Asia Pacific and Japan in a conference call on Friday.
Dell reported Thursday that worldwide revenue for the third quarter was US$15.16 billion, a 3 percent drop compared to the third quarter of last year. Profits dropped 5 percent to $727 million.
Although Asia helped boost Dell's results in the third quarter, it still accounts for just 16 percent of the company's total revenue. The key new growth markets in the region - India and China - accounted for about 5 to 6 percent of Dell's overall revenue, which is not large enough to offset the impact of the economic downturn in the US which accounts for about half of Dell's business, Felice said.
Dell's revenue grew 11 percent in Asia, including Japan, in the quarter, while unit sales grew 29 percent. Profits more than doubled compared to the same time last year, Felice said.
In China, the company saw its revenue grow 18 percent, while unit sales grew 44 percent. In India, unit growth was 77 percent, while revenue growth was 48 percent.
Growth in India came largely from increased market share in the consumer and small and medium business (SMB) segments, even as there is an overall slow-down in industry spending, Felice said.
The company will continue to focus on these two markets in India, where its share is still small, besides its mainstay corporate market, he added.
Spending in China on IT is difficult to predict, but new investments in infrastructure in China, including a $586 billion stimulus package for the economy announced by the Chinese government, could create demand for IT products, Felice said.
In April, Dell said it wanted to save US$3 billion by 2011 by reducing its headcount and procuring cheaper materials and components. Cost cutting in Asia will probably be minimal, as the company's business continues to grow fast in the region, Felice said. --John Ribeiro
