Dell upbeat on sales outlook despite grim global demand

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A Dell personal computer at a display centre in Santa Clara, California. Photo - Paul Sakuma/AP
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A Dell personal computer at a display centre in Santa Clara, California. Photo - Paul Sakuma/AP

Declining US demand for Dell has forced the technology giant to cut its sales forecast for the year. Analysts say Dell was expecting a fiscal 2012 revenue growth between 5-9%, but now the leading PC manufacturer has dropped its expected revenue to anything below 5%.

GENERAL PERFORMANCE

But all is not looking grim for the company as the PC maker posted a net income of $890 million for the second quarter. In addition to that, profits have risen to 69%, higher than predicted. Revenues also rose by 1%.

The boost came at a time when companies within the US, including the government have been spending more. Dell is expanding its business in the higher margin market such as servers, data storage and computer services.

The modest increase in revenue is attributed to a stronger spending by companies and the US government. Dell reported a net income of 48 cents a share in the second quarter with a revenue of $15.66 billion. Additionally, non-GAAP (Generally Accepted Accounting Principles in the US) earnings were 54 cents a share.

However, due to the bleak global economic situation, Dell is expected to come under pressure during the rest of the year, as governments and individuals cut back on spending. Shares of the company dropped about 6% in after-hours trading on the weaker sales outlook.

UNCERTAIN FUTURE

Dells current forecasts are well below their previous estimates.

The outlook overshadowed Dells not-so-bad performance in the second quarter of the year. Wall Street was expecting earnings of 39 cents a share on revenue of $15.76 billion. On the other hand, analysts had expected weak consumer demand to curb revenue growth, but boost profit margins.

Dell said that enterprise demand remains solid, but sales are beginning to weaken. The companys CFO, Brian Gladden reckons demand environment is weaker and a bit more uncertain than what Dell had in its previous view.

POSSIBLE POSITIVES

Michael Dell, CEO Dell, believes that the corporate upgrade cycle remains intact and will do good for the company. The company seems confident on how it can continue to grow, especially in terms of servers and networking gear.

The top officials at the company said they would continue to invest in sales, and widen its market. We know the values created not by acquiring companies but rather by successfully integrating them along with continued investments in Research and Development and sales capabilities. Its early, but were building a strong track record of successful integrations. Both are organic and inorganic investments are being made with a mid market design focus, said the technology giant founder.

Brad Anderson, senior vice president of Dells enterprise business said the company will focus on its long term plans, even if the IT demand reduces.

COMMERCIAL PERFORMANCE

Dells commercial business delivered second quarter sales of $12.8 billion and the companys services revenue was $2 billion, up 6% from a year ago. Dell-owned storage sales also gained 15 % in the second quarter compared to a year ago.

Analysts believe Dells sales outlook may be a bit negative, albeit practical, although the current state of the world economy forces the leading PC maker to have modest expectations.

Sources: BBC, ZDnet

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