Dell profits fall 28% in the third quarter

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Dell, the world’s biggest computer maker by revenue, on Thursday said profits fell 28 per cent in the third quarter, as sluggish growth in its US consumer business and the cost of fixing faulty electronics in some of its machines outweighed continued strength abroad.

Kevin Rollins, Dell’s chief executive, said the company was “disappointed” with its recent performance, but added it remained committed to its medium-term goal of increasing revenues by almost 40 per cent to $80bn over the next few years.

“We have not backed off the $80bn’’ goal, said Mr Rollins. “We think we can achieve it.”

Mr Rollins has come under pressure in recent months to revive the flagging fortunes of Dell’s US consumer business, after the company said in August that pricing mistakes led to an unexpected drop in revenues in the second quarter.

Dell’s reputation as an outperformer suffered another jolt last week when the company warned that third-quarter earnings and revenues would fall below expectations.

Dell said on Thursday that third-quarter profits fell 28 per cent to $606m, from $846m in the year-ago period, driven in part by a $442m one-off charge mostly related to the cost of fixing faulty equipment in some of its computers.

Revenues grew 11 per cent to a record $13.9bn, in line with the company’s revised guidance but below what most analysts had hoped.

“Our operating performance was again exceptional by any comparable measure,” said Mr Rollins. “However, we hold ourselves to higher standards.”

Looking ahead, Dell said it expected revenue growth in the fourth quarter of between 9-11 per cent, down significantly from last year’s full-year growth rate of 19 per cent, and below the 16 per cent growth rate that had previously been thought sustainable in the longer term.

Mr Rollins said Dell had taken several steps to address its recent under-
performance, including cutting jobs, investing in customer service and consolidating several business functions.

Although its US consumer business lagged, the group’s enterprise business continued to show solid growth. UK slowed, however, amid a drop in government spending.

Dell’s fast-growing printer business achieved profitability in the third quarter, with laser printers showing the strongest growth.

Mr Rollins said Dell would address a shift in demand from high-end to low-end systems by focusing on products aimed at a broad range of markets.

Shares in Dell, which rose 0.7 per cent in New York trading on Thursday, slipped 1.3 per cent to $28.83 in after-hours trading but recovered the loss in early trading on Friday to $29.70.

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