Profits down for Dell, despite revenue growth

PC maker Dell saw its net income slide 4.8% in its fourth quarter, despite all of its business divisions showing strong increases in revenue.

Overall sales for the three-month period rose 11% to $14.9 billion, thanks in part to a $600 million boost to services revenue due to the acquisition of Perot Systems in September 2009. But net income fell to $334 million, based on a combination of rising component prices and the fact that Dell’s cheaper, consumer PCs represented a large proportion of its sales.

Dell’s public sector unit showed the greatest upturn in revenue at 16% year-on-year to $3.8 billion, followed by consumer at 11% to $3.5 billion. Small and medium-sized business revenue was up 10% to $3.3 billion, and large enterprise sales rose 8% to $4.2 billion.

Chief executive Michael Dell assured investors during a conference call that last year’s release of Microsoft operating systems Windows 7 would be a key driver for sales growth this year.

"On the client side we are beginning to see a refresh driven by Windows 7 and increased mobility," Dell said. "The age of the installed base is significant and customers see the refresh as a productivity enabler. We think the refresh takes time and stretches well into 2011." He added that the coming year would see his company "reducing product complexity" and streamlining its supply chain as part of its strategy to improve profitability.

Dell is currently undergoing a multi-billion dollar cost cutting initiative which has seen the business reduce the number of its manufacturing locations from 11 to six, and implement employee redundancies.

Following the conference call, Toni Sacconaghi, an analyst at Sanford Bernstein, commented that he was "still struggling with the significant deterioration" in Dell’s profits, considering all four of its business units had seen their respective revenues grow.

Statistics published by market analyst Gartner today confirmed growing consumer appetite for low price point PCs, as budget manufacturer Acer stole the largest Western European market share at more than 23% in the fourth quarter, ahead of both Dell and Hewlett-Packard. Overall shipments were up 4% year-on-year to 20.3 million.

Earlier this week, Hewlett-Packard posted revenue and net income increases of 8% and 25%, respectively, on the back of returning demand for its notebooks and server hardware.

Peter Done

Peter Done is managing director of Peninsula Business Services, the personnel and employment law consultancy he set up having already built a successful betting shop business.

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