Last updated: October 18, 2007 7:46 pm

DSG hits out at Microsoft over Vista

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DSG International has lashed out at Microsoft’s marketing efforts for its Vista operating system after the European retailer was forced to slash the prices of laptops following subdued consumer demand.

Kevin O’Byrne, finance director of DSG, which owns PC World and Currys in the UK, said he was “disappointed with a lack of promotion and support” from the US software group, which would lead to a £20m ($41m) downgrade to first-half profit expectations.

Shares in DSG fell 11.9p to 124.1p after the bad news was compounded by a continued like-for-like sales decline at UniEuro, the group’s struggling Italian chain.

Nick Bubb, analyst at Pali International, cut his profit forecasts for DSG and said the retailer had been guilty of optimistic assumptions on the Vista effect.

“To be fair, Kesa [owner of Comet in the UK and Darty in France] were more cautious about Vista; they never thought it was going to change the market dramatically. DSG over-egged it.”

Mr O’Byrne said he expected the £20m shortfall would be partially offset by strong performances elsewhere in the business.

“We anticipate that some full-year forecasts might come down by between £5m and £10m. We are seeing quite resilient demand year on year and are optimistic given our strong product pipeline,” he said.

Tony Shiret at Credit Suisse said he had concerns about the retailer’s outlook given that the recent performance of the group had been underpinned by sales of flat-screen TVs and laptops – and suddenly it was not selling as many laptops.

“For us to see a drop in sales [growth] at PC World from 6 per cent like-for-like in the first 16 weeks to 2 per cent at the 24-week stage is materially worse than we were expecting,” he said.

He pointed to the special offers of free laptops run by companies such as Carphone Warehouse, which were increasing the pressure on the retailer.

DSG’s performance in Italy, where like-for-like sales fell 8 per cent, was described as “disappointing”, dashing hopes of a sales revival in this market. It said Mark Rollman, managing director of the Italian division, had left the business for personal reasons.

Total group sales increased 9 per cent, helped by strong performances from the electricals division in Greece, central Europe and the Nordic countries.

Microsoft declined to comment.

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