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Dell's profits shrink as revenue grows

Blame cheap PCs

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Profits for Dell - the world's third-largest computer seller by shipments - declined 4.8 per cent during its fiscal fourth quarter despite an increase in sales for each of its business units.

Steeper component costs were part of the problem. Plus, cheaper consumer PCs accounted for a larger percentage of sales. Dell's net income slipped to $334m in the quarter ended January 29, compared to $351m a year ago.

Meanwhile, fiscal Q4 2010 revenue was 14.9bn, an 11 per cent increase from $13.43bn year-over-year.

After suffering through slowed technology spending in the global downturn, chief executive Michael Dell has been moving to diversify into more stable markets like the IT services biz. That focus has led Dell to acquire Perot Systems last September in a deal worth S3.9bn, but it also allowed Dell to slip into the number three spot behind Acer in the worldwide PC market.

“Our solutions portfolio is expanding rapidly, driven by our strong capabilities, ongoing innovation and smart acquisitions," said the D-man in a prepared statement. "We continue to listen to and engage closely with customers through millions of conversations and interactions each day, enabling Dell to provide more relevant, value-oriented solutions to help meet their unique needs.”

Dell's Large Enterprise revenue was $4.2bn, up 8 per cent over the same period last year. Operating income for the quarter was $281m, an 8 per cent improvement over that period.

Public sector sales were $3.8bn, a 16 per cent boost counting revenue from Perot Systems — and a 3 per cent increase without. Operating income was $333m, up 15 per cent.

Small and medium business revenue was $3.3bn, up 10 per cent year-over-year. Dell said the growth was driven by stronger sales of mobile products and servers, with shipments rising 18 per cent compared to fiscal 2008. Operating income was $282m, an 18 per cent rise year-over-year.

Revenue from Dell's consumer PCs was $3.5bn, an 11 per cent increase over fiscal Q1 2008. Shipments increased 29 per cent year-over-year, and operating income was $9m.

Dell's slumping profits are in stark contrast to the latest reported quarter of its chief rival Hewlett-Packard, whose profits jumped 25 per cent on increased sales of consumer PCs, servers, and printers.

For the full fiscal year 2010, Dell's revenue was $52.9bn, down 13 per cent compared to fiscal 2009. Full-year net income was $1.43bn, a 42 per cent drop from the previous fiscal year.

The company didn't provide a dollar figure for its outlook on the first quarter of its fiscal 2011, but the company said it's "cautiously optimistic" that demand in its important commercial business will continue into the next fiscal year. Dell added that in the longer term, it is confident the company can generate growth in revenue, operating-income margin, and cash flow from operations. ®

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