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After Forecast Miss, Dell CFO Looks to Enterprise

o Roy Harris
23.02.2012 kl 00:08 | CFOworld (US)

With Dell Inc.'s missed first-quarter sales forecast this week, a development that knocked its share price down as much as 5% the next day, Dell CFO Brian Gladden has emerged with CEO Michael Dell as a second spokesman for the personal-computer company's future.

 

With Dell Inc.'s missed first-quarter sales forecast this week, a development that knocked its share price down as much as 5% the next day, Dell CFO Brian Gladden has emerged with CEO Michael Dell as a second spokesman for the personal-computer company's future.

The company has said that sales are being hurt by lackluster demand from consumers and government agencies. Revenue for the period ending in April now is being forecast by the Round Rock, Tex.-based company to fall 7%, to $14.9 billion. The average, calculated by Bloomberg from analyst estimates, had been $15.1 billion.

Bloomberg also has reported that the sluggish sales -- coupled with shrinking profit last quarter --- are raising analyst concerns about Dell's comeback plans, which involve a streamlining of operations to boost profit. Dell recorded almost a 25% gain last year in share price, but some investors may have been overly optimistic about the company's ability to turn around its operations, Brian Marshall, an analyst at ISI Group Inc. in San Francisco, told the news service.."

But listen to CFO Gladden: "Our full-year results are a strong reflection of the significant progress we made this year on our strategic priorities." He added: "The expanding mix of revenue and earnings from enterprise solutions and services is critical to our future." Dell noted that it is now 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," Gladden told Bloomberg this week in an interview. Sales to large corporations rose 5% last quarter, while the unit that sells to small and midsize businesses got a 6% boost, the company said.

Customers Seeing Dell 'in Broader Terms'

CEO 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.

"Our customers think of Dell in much broader terms now, trusting us with their comprehensive IT needs, from the datacenter to the device," he said in the news release. "We are more committed than ever to both developing and investing in innovative solutions that deliver greater value and better outcomes for our customers."

He added in the conference call that Microsoft Corp.'s Windows 8 operating system, due later this year, could provide a lift to consumer PC sales. The company also will entice business customers wanting 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," the CEO said. "There's pretty strong appetite for Windows 8 tablets in the enterprise."

Hard to 'Move the Needle'

But, said ISI Group's Marshall, who has a "neutral" rating on the shares, "The ship is so big that to move the needle is a Herculean feat. Expectations are way too high."

Dell, the world's third-largest PC maker, fell as low as $17.29 in extended trading a day after the missed forecast. And so far this year shares have outperformed the Standard & Poor's 500 Index, which climbed 8.3%.

Fourth-quarter net declined 18%, to $764 million, or 43 cents a share, from $927 million, or 48 cents, a year earlier. Sales rose 2%, 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.

Dell Vs. Apple

Sales in the consumer division, though fell 2% last quarter -- indicating to some that Apple Inc. is taking buyers from Dell with Apple's Mac and iPad devices. Revenue in the business that caters to governments slipped 1% amid "weakness" in purchasing by U.S. federal agencies and governments in Western Europe, Dell Inc. said.

"When do we see revenue growth for the company start to show up?" according to 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," Lamba told Bloomberg.

In general, consumer purchasing is down in the current economy, as well. And those that are buying prefer iPads rather than traditional notebooks. PC shipments fell 4.9% last year, according to research firm IDC, the worst performance since 2001.

Plus, the 2011 flooding in Thailand hurt disk-drive production, and created supply disruptions likely to continue into Dell's October quarter, the company said.

Diversification Has Started Already

Dell has been diversifying beyond PCs, buying 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.

According to one analyst, Dell could be scouting for a software acquisition worth $1 billion to $3 billion. Peter Misek, with Jefferies & Co., who has a "hold" rating on Dell shares, told Bloomberg that computer and data-management software makers Quest Software Inc. and CommVault Systems Inc. are possible targets. 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," according to the CEO.

Keywords: Business Management  Business Issues  
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