Technology

Dell Shares Fall After Sales Forecast Misses Analysts’ Estimates


(Bloomberg) — Dell Inc. fell as much as 5.1 percent in late trading yesterday after its first-quarter sales forecast missed analysts’ estimates, dragged down by lackluster personal-computer demand from consumers and governments.

Revenue for the period ending in April will decrease 7 percent to $14.9 billion, Round Rock, Texas-based Dell said in a statement. That trailed the average $15.1 billion estimate of analysts, according to data compiled by Bloomberg.

The sluggish sales — coupled with shrinking profit last quarter — have raised concerns about Dell’s comeback plan, which has relied on streamlining operations to boost earnings. After an almost 25 percent gain in Dell’s shares this year, some investors may have been overly optimistic about the company’s ability to turn around its operations, said Brian Marshall, an analyst at ISI Group Inc. in San Francisco.

“The ship is so big that to move the needle is a herculean feat,” said Marshall, who has a “neutral” rating on the shares. “Expectations are way too high.”

Dell, the world’s third-largest maker of PCs, fell as low as $17.29 in extended trading. So far this year the stock had outperformed the Standard & Poor’s 500 Index, which climbed 8.3 percent.

Fourth-quarter net income declined 18 percent to $764 million, or 43 cents a share, from $927 million, or 48 cents, a year earlier. Sales rose 2 percent to $16 billion, in line with analysts’ estimates. Excluding some items, earnings will be at least $2.13 a share this fiscal year, Dell said.

Apple Competition

Sales in the consumer division fell 2 percent last quarter, evidence that Apple Inc. is winning over buyers with its Mac and iPad devices. Revenue in the business that caters to governments slipped 1 percent amid “weakness” in purchasing by U.S. federal agencies and governments in Western Europe, Dell said.

“When do we see revenue growth for the company start to show up?” said Abhey Lamba, an analyst at Mizuho Securities USA Inc. in New York, who initiated coverage of Dell this month with a “buy” rating. “They’ve been able to grow earnings because of cost management and supply-chain improvements. But you can do that for only so long. At a certain point, revenue needs to start growing or else earnings will come down.”

Dell is suffering from competition with Apple at the high end of the market and Lenovo Group Inc. and Acer Inc. at the low end, Shaw Wu, an analyst at Sterne Agee & Leach Inc., wrote in a research note earlier this month. Chief Executive Officer Michael Dell, who retook the reins of the company in 2007, is making deals and adding new products in a bid to revive growth and focus on more profitable areas.

Tight Purse Strings

Consumers are keeping their wallets closed as they cope with a slow economic recovery, and some are opting for iPads instead of traditional notebook computers. U.S. PC shipments declined 4.9 percent last year, the worst performance since 2001, according to research firm IDC.

In addition, last year’s flooding in Thailand crimped disk- drive production. The supply disruption will continue into the quarter that ends in October, the company said.

Microsoft Corp.’s Windows 8 operating system, due later this year, may provide a lift to consumer PC sales, Michael Dell said yesterday on a conference call with analysts. It also will entice business customers that want to buy tablets running Windows, he said. Until now, most tablets have run software from Apple or Google Inc.

“With Windows 8, there’s great excitement in the corporate space for us,” Dell said. “There’s pretty strong appetite for Windows 8 tablets in the enterprise.”

Business Strength

Dell also is selling more of its own data-storage and networking gear, instead of relying on products made by such companies as EMC Corp. Business computing demand is “pretty strong,” Chief Financial Officer Brian Gladden said in an interview. Sales to large corporations rose 5 percent last quarter, while the unit that sells to small and midsize businesses got a 6 percent boost, the company said.

Dell and rival Hewlett-Packard Co. are counting on sales of thin, lightweight laptops called “ultrabooks” to spur sales. Dell’s new ultrabook, called the XPS 13, starts at $999. It’s made of aluminum, carbon fiber and glass, sports a 13.3-inch screen, and will go on sale later this month.

Dell also is diversifying beyond PCs. It bought computer networking company Force 10 Networks Inc. last August for an undisclosed price and storage maker Compellent Technologies a year ago for about $856 million. On Feb. 2, it hired former CA Inc. CEO John Swainson to head a new software group.

Software Deal?

Dell may be scouting for a software acquisition worth $1 billion to $3 billion, said Peter Misek, an analyst at Jefferies & Co. Misek has a “hold” rating on Dell shares.

Computer and data-management software makers Quest Software Inc. and CommVault Systems Inc. are possible targets, he said. BMC Software Inc., which makes tools to manage servers, may be too large, considering its $6.4 billion market value.

Dell plans to hold a Feb. 27 event in San Francisco with Michael Dell to discuss its data-center products. The company will continue to acquire software companies, he said yesterday on the conference call.

“There’s significant opportunity for us to build a big business here,” he said.

Aaron_ricadela_75x75
Ricadela is a reporter for Bloomberg News and Bloomberg Businessweek in Frankfurt.

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