In a development that some reports have hailed as the death knell of the PC era, hardware manufacturer Dell reported plummeting earnings that missed analysts already low estimates Thursday, ending a third fiscal quarter that continued a trend of plunging PC and consumer business revenues amid shifting market tides.
The Round Rock, Tex-based hardware company reported net income that dropped 47 percent to $475 million, down from $893 million during the third quarter of 2012.
Overall third quarter sales revenues followed a similar trajectory, declining 11 percent to $13.72 billion from $15.37 billion from a year ago.
The numbers came below analyst’s already low estimates. Projection by Thomson Reuters anticipated the company to report at least $13.90 billion in revenue.
Despite the falling earnings, Dell shares rose initially, but dropped again by 2.4 percent by the end of the day on Thursday. And looking ahead, Dell CFO Brian Gladden said that a challenging macroeconomic and cautious IT spending environment will continue to adversely affect the company’s revenues. “Don’t expect it to improve in the fourth quarter,” he said
Behind Dell’s disappointing third quarter results were plummeting PC sales, which fell 19 percent from Q3 of last year to $6.6 billion. But the company’s dismal earnings and weak outlook were also sourced to across-the-board declines in almost other every key sector – storage revenues dropped 16 percent, software and accessories declined 11 percent, and even services were down 1 percent.
The downward spiral tapped into almost all of Dell’s market segments – with the greatest loss attributed to consumer revenues that plummeted 23 percent. However the firm experienced losses in other market divisions including its enterprise business, which fell 8 percent, public sector, which dropped 11 percent and even SMB revenues, which declined by a meager 1 percent.
Indeed the picture seems bleak. And while the news was likely difficult for Gladden to relay to an army of analysts and investors, it hardly came as a surprise.
Last quarter Dell reported an 8 percent revenue decline and an 18 percent drop in income, accentuated by plunging consumer sales that fell to the tune of 22 percent compounded by a 9 percent drop in PC sales.
Dell’s Gladden pointed to a challenging macroeconomic climate and enterprise deferments of major purchases, as well as Microsoft’s recent release of its Windows 8 OS as some of the biggest sources of sales decline. But other forces are likely at play, which include mobile and cloud trends that have leapfrogged over PC and other hardware sales, as well as a painstakingly slow growth trajectory for its software ambitions.
Meanwhile, it’s no small secret that users have continually migrated away from stationary PCs, supplanting them with more nimble and innovative smartphones, tablets and even laptops. The numbers reflect overall industry trends — IDC reports that global PC shipments have tumbled 8.6 percent from the third quarter of 2011.
It’s little comfort that industry peers are in the same boat. PC and printer manufacturer Hewlett Packard, which is expected to announce its fourth quarter results next week, reported a 5 percent revenue loss for its third fiscal quarter, driven largely by sinking PC and printer sales.
Thus the earnings of both HP and Dell reflect companies in transition. And HP CEO Meg Whitman has previously stated that the company is in the middle of a turnaround that promises to get worse before it gets better. So what is Dell going to do? It’s going to stay the course and try to finish what it started — reinvent itself.
Over the last year, Dell has been on an acquisition frenzy. Its list of recent targets included database management and administrative tools firm Quest Software, unified threat management firm SonicWall, thin client vendor Wyse , and application protection firm AppAssure, among others. And it’s safe to say that the firm is in the middle of integrating all of its new purchases, which, when fully digested, will go a long way to round out an enterprise IT software portfolio that is expected to be integral in its transformation.
And to that end there were a few beacons of light. Enterprise solutions and services revenue grew three percent year-over-year to $4.8 billion. Meanwhile, server and networking revenues grew 11 percent – representing the only top 3 server provider to experience positive unit growth.
Executives lauded security sales, particularly stemming from its recently acquisition of firewall vendor SonicWall, and expressed high hopes for Wyse Technology solutions which they hoped to expand to multiple mobile and thin client devices.
And going forward, Dell will likely be investing with renewed vigor in these and other areas, as it attempts to take larger pieces of the enterprise IT software and services market.
However, it’s unclear whether that means that Dell will eventually divorce its mainstay PC business as it continues to make investments elsewhere.
But as many know, divorce is never easy. It doesn’t happen overnight. It’s messy. It’s expensive. It leaves you empty and depleted and uncertain about the future. And often with little in your hand when all is said and done.
However, the good news is, there is often nowhere to look but up. And that means assessing what you have, parting with what you don’t need, and making an effort to start all over again.
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