Dell Profits Dip In 4Q - InformationWeek

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Dell Profits Dip In 4Q

The PC maker is diversifying its business via acquisition of an IT services firm and plans to enter the smartphone market.

Dell has reported a 5% drop in profit in the fiscal fourth quarter, as sales during the holiday quarter leaned heavily toward less profitable consumer PCs.

The world's third largest computer maker on Thursday reported net income in the quarter ended Jan. 29 of $334 million, or 17 cents a share, down from $351 million, or 18 cents a share, the same period a year ago. Revenue rose 11% to $14.9 billion from $13.4 billion.

The decline in profit was driven by a drop in gross margin to 16.6% from 17.2%. The decline was due to pressure from "seasonal strength in consumer demand, which has lower margins," the company said in a statement.

Dell has been slower than competitors in recovering from the economic downturn because a large portion of its revenue depends on corporate sales. Last year, companies reined in spending dramatically, while consumer spending kept the PC market afloat.

However, consumers bought mostly low-cost PCs, particularly netbooks, which Dell also sells. The rise in sales of inexpensive systems has significantly dropped average selling prices for the industry.

Dell has been diversifying its business to open up other revenue streams. The company during the quarter acquired IT services company Perot Systems for $3.9 billion and plans to launch a smartphone based on Google's Android operating system this year. AT&T will carry the device in the United States.

Dell reported that product shipments during the fiscal fourth quarter rose 16% from a year ago, driven by a 29% increase in consumer PCs and a 16% increase in PCs and servers to small and medium-sized businesses. Shipments of laptops overall were up 32%.

Dell said it saw businesses beginning to spend again in the quarter and was "cautiously optimistic that this trend will continue into fiscal-year 2011." The company did not provide a revenue forecast for the current quarter.

Dell's results drove its stock price down 5% in after-hours trading, as the company's performance fell short of rival Hewlett-Packard's. On Wednesday, HP reported a 25% increase in profits in the quarter ended Jan. 31, and an 8.2% increase in revenue.

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