February 27, 2009 1:22 am

Dell profits drop as business takes battering

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Dell reported a steep drop in sales and profits as the global recession battered the PC business, while IBM, which recently shed its own PC operations, showed itself to be fairly resilient as it reaffirmed earnings guidance for the year.

Despite the declines, Dell, the world’s second-largest personal computer maker, beat earnings expectations largely by cutting costs. Shares of Dell, which fell 58 per cent last year, rose slightly in after-hours trading.

Dell’s net income fell 48 per cent to $351m, from $679m a year earlier. Earnings were 29 cents a share, beating expectations of 27 cents. Sales were down 16 per cent to $13.4bn, from $16bn a year earlier.

Dell reduced operating expenses by 16 per cent in the quarter, part of the $3bn in planned cost-reductions by 2011 that the company announced last year.

Brian Gladden, chief financial officer, said Dell was raising its cost-reduction target to $4bn. “We’ll be the first to admit that this is a work in process and that there’s more to do,” he said. “We will continue to rapidly adjust our costs in response to demand.”

The last three months of 2008 were the worst in years for PC makers. Dell’s largest rival, Hewlett-Packard, last week posted weaker than expected earnings and reduced its sales forecast for the year. Corporate IT spending, in particular, has slowed dramatically in recent months. Revenue for Dell’s Americas Commercial business was down 17 per cent to $6bn, on a 23 per cent decrease in units sold.

Dell did not issue forecasts, but in a statement said: “Global IT end-user demand will continue to be uncertain and challenging.”

IBM, meanwhile, reiterated its earnings guidance for this year, setting it apart from other technology companies that have largely backed away from issuing forecasts in recent weeks. Unlike arch-rival Hewlett-Packard, which warned last week of further slowing in January, IBM said that the year so far had seen no further deterioration in its business.

“There was nothing in January to make us change our view, and quarter-to-date [new orders] have held up,” said Mark Loughridge, chief financial officer.

IBM put its performance down to a reshuffling of its business mix since the last recession, which has seen it get out of the troubled PC and disk-drive markets, as well as a decision to refocus investment on emerging markets. While the emerging economies are now under pressure, IBM still expects growth there to outperform developed markets by the 7-9 percentage points seen last year, Mr Loughridge said.

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