San Francisco: Dell Inc. tumbled the most in more than three years after the company forecast fiscal second-quarter revenue that missed analysts’ estimates.
Revenue for the period ending in July will be $14.7 billion to $15 billion, Round Rock, Texas-based Dell said in a statement, compared with the average $15.4 billion analyst estimate compiled by Bloomberg.
“The forecast, paired with a first-quarter sales and earnings miss, pointed to problems endemic to Dell,” Steve Felice, Dell’s president, said in a conference call. “The sales team focused on individual products instead of packages of hardware and software,” he said. A reorganization is underway aimed at lining up staff that can sell a complement of Dell products, instead of specializing in individual ones.
“In my own interactions with larger customers, we are seeing a delay and pause in spending activity,” chief executive officer Michael Dell said during the call on Tuesday with analysts. “PC sales will remain sluggish because businesses won’t move immediately to Microsoft Corp.’s Windows 8 operating system when it’s introduced later this year. Corporations are still adopting Windows 7.”
Shares slumped 15% to $12.84 at 9:54 am in New York, the biggest intraday decline since 13 November, 2008. The stock had climbed 3.1% this year before today (Wednesday).
Demand for Apple Inc.’s iPhone and iPad and other mobile devices are eating into Dell’s notebook sales. The world’s third largest personal computer maker lost share in the global PC market in the first three months of the year, according to market researcher Gartner Inc.
Fiscal first-quarter net income was $635 million, or 36 cents a share, compared with $945 million, or 49 cents, a year earlier. Sales fell 4% to $14.4 billion, compared with an average $14.9 billion estimate. Profit excluding some items was 43 cents a share, while the average projection was 46 cents. Gross margin, or the percentage of sales remaining after deducting costs of production, was 21.3% in the first quarter, compared with a 22% estimate. A year earlier, gross margin was 22.9%.
“They’re focused on profitability,” said Shaw Wu, an analyst at Sterne Agee and Leach Inc. in San Francisco. “That’s a double-edged sword. Sure it can help your margins somewhat, but you’re also shrinking your installed base.”
While Dell didn’t change its earnings-per-share forecast for the year, chief financial officer Brian Gladden told analysts on the call there’s clearly pressure on the total year outlook.
Global PC shipments in the first quarter increased about 1.9%, according to Gartner.