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Dell's profit evaporates as AMD love swells

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Banish any thoughts of Dell suffering from a short-term stumble. The Dell juggernaut has veered far off the tracks and doesn't look set to recover anytime soon.

Dell today tossed out weak second quarter results, marking the third time in the last four quarters that the company has displayed lackluster sales. Revenue for the quarter came in at $14.1bn – a modest five per cent increase over the same period last year. Dell's net income, however, plummeted to $502m from $1.02bn last year.

Most companies would be pleased to take home $502m, but Dell is used to much stronger performances.

"While we are disappointed with the results for the quarter, we are taking the necessary actions to correct missteps and improve our results for the long term," said Kevin Rollins, Dell's CEO. "Key actions include accelerating cost initiatives, increasing investments in service and support, and better pricing management."

Rollins handed out the same "lower prices and improve customer service" message last quarter, but the plan did little to boost Dell's bottom line.

Dell's PC sales, for example, slid 4 per cent year-over-year to $4.9bn. The company's second quarter server sales were unimpressive as well, remaining flat at $1.4bn. We can't remember the last time Dell has failed to grow its server business.

Hoping to improve sales, Dell today announced a broader partnership with AMD on both the PC and server fronts. It will ship Dimension systems with AMD's 64-bit PC chips next month and will add a two-socket Opteron-based server to its upcoming four-socket box that was announced last quarter. The servers will ship "by the end of the year."

Dell's notebook sales rose 8 per cent to $3.7bn.

Storage sales jumped 36 per cent to $500m, services revenue increased 21 per cent to $1.4bn and software and peripherals revenue rose 10 per cent to $2.2bn.

Along with the financial woes, Dell hit investors with more bad news. It revealed that a US Securities and Exchange Commission (SEC) investigation has turned up "information that raises potential issues relating to certain periods prior to fiscal 2006."

"While the company does not believe that these issues have had or will have any material impact on its financial position or the reported results of operations for the relevant years, the company's audit committee, upon the recommendation of management, has initiated an independent investigation," Dell said. "Management is committed to addressing any questions, concerns or issues the SEC or the audit committee may have."

Dell has blamed a weak commercial market and vicious PC pricing for its recent problems. Although, you have to question such finger pointing given the strong results turned in recently by HP and Sun Microsystems.

There seems to be a shift underway where Dell is no longer considered the lowest cost supplier or where customers are shying away from the cheapest, most basic gear. Dell's customer service problems have also hurt its reputation with customers. ®

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