Dell desktop, storage revenue drops in Q2

Dell had strong profit growth in the second fiscal quarter of 2012, although the company’s revenue was hurt by a drop in sales of storage and desktop products, Dell said on Tuesday.

On a GAAP (generally accepted accounting principles) basis, Dell recorded a net profit of US$890 million for the quarter ending on July 29, up 63 per cent compared to the same quarter a year ago. The company recorded earnings per share of US$0.48. Net income on a non-GAAP basis was US$1 billion, an increase of 60 per cent, and 0.54 per share, five cents above the consensus estimate from analysts polled by Thomson Reuters for earnings per share.

Dell’s overall revenue grew by just one per cent to US$15.7 billion, and the company’s product revenue, minus software, was flat compared to the previous year. However, Dell’s services revenue grew by six per cent year over year.

The company’s revenue results were mixed across its enterprise and consumer product lines. Dell’s desktop revenue was US$3.7 billion, dropping by three per cent compared to a year ago. Storage revenue was US$502 million, dropping by 20 per cent. The company’s laptop revenue grew by just 1 per cent year over year to US$4.7 billion.

However, the company’s server and networking revenue grew by nine per cent to US$2.05 billion.

The company is trying to move to higher-margin areas to deliver better results, the company said in a statement. Dell said the demand for servers and services was solid during the second quarter.

“We continue to see great momentum in the high-growth areas of our business,” said CEO Michael Dell in a statement.

Overall large enterprise revenue totaled US$4.6 billion, growing one per cent year over year. The company is increasing its focus on the midmarket — companies with up to 5,000 employees — and looking to acquire companies to grow its enterprise hardware and software portfolio, Dell said on a conference call.

The company also wants to focus on cloud and security services for the midmarket, Dell said.

The company experienced some hiccups in the storage supply chain, which affected revenue, said Brad Anderson, senior vice-president of the Enterprise Solutions Group. Anderson did not describe the issue in detail but said it has been “rectified.”

Dell is also preparing to release new EqualLogic software and hardware, which hurt demand for storage products in the second quarter, Anderson said. The new products will bring a “bit more balance in Q3,” Anderson said.

The consumer business was a weak spot during the second quarter, with revenue growing by just 1 per cent, said Brian Gladden, Dell’s chief financial officer. Revenue was up in the Asia-Pacific and Japan region and in EMEA (Europe, Middle East and Africa), though revenue declined in the Americas region.

“U.S. consumer has been weaker than expected,” Gladden said, adding that the market is expected to be weak going into the third quarter.

Pricing on consumer products has been weak over the past few quarters compared with historic trends, Gladden said. The company is moving to higher-margin products for the consumer market while removing lower-margin hardware products from its offerings.

More than 50 per cent of Dell’s revenue came from outside the U.S., Gladden said. Revenue from Asia-Pacific/Japan and EMEA grew by 17 per cent and 1 per cent, respectively. Revenue from the Americas was down by four per cent.

Dell declined to comment on Google’s deal to acquire Motorola Mobility this week, other than to say the move may have been intended to build Google’s intellectual property portfolio. “Certainly patents play a big role here,” Dell said.

To build its data-center technology stack, Dell last month acquired Force10 Networks, which the company hopes to close during the third quarter. Dell projects its third-quarter revenue to be flat relative to the second quarter, the company said.

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Jim Love, Chief Content Officer, IT World Canada

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Agam Shah
Agam Shah
Agam Shah is a reporter for the IDG News Service in New York. He covers hardware including PCs, servers, tablets, chips, semiconductors, consumer electronics and peripherals.

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