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Dell Profit Falls 47% On Weak PC Demand


Dell Inc. (DELL) said Thursday after the markets closed that its third quarter profit fell 47% from last year, as revenue declined and margins deteriorated amid weak demand for personal computers.

The company's quarterly earnings per share, excluding items, also came in below analysts' expectations as did its quarterly revenue.

At the same time, the Round Rock, Texas-based company gave a downbeat revenue guidance for the fourth quarter, but maintained its full year earnings outlook.

Dell shares are currently losing 2.41% in after hours trading after closing the day's regular trading session at $9.56, down 2 cents. The shares trade in a 52-week range of $9.11 to $18.36.

Lower revenue and weaker margins weighed heavily on Dell's earnings. Gross margin for the quarter narrowed to 20.9% from 22.6% a year earlier, while operating margin shrank to 4.3% from 7.4% last year. On an adjusted basis, gross margin for the quarter narrowed to 22.0% from 23.1% a year earlier, while operating margin shrank to 6.5% from 8.4% last year.

Region wise, the company's Amercas revenue fell 9% year-over-year in the third quarter, while Europe, Middle East and Africa revenue dropped 15% and Asia-Pacific and Japan revenue slipped 11%.

The company's desktop PC revenue for the third quarter fell 8% to $3.13 billion, while its mobility revenue, which includes laptop PCs, dropped 26% to $3.52 billion.

Last month, two industry research firms International Data Corp. (IDC) and Gartner Inc. (IT) said that global PC shipments in the third quarter of 2012 fell over 8% from last year, as the popularity of latest smartphones and media tablets continued to hit PC demand and PC vendors liquidated inventory a ahead of the release of Microsoft Corp.'s (MSFT) Windows 8 operating system.

Dell is now the world's third largest PC maker. It had lost the global PC lead to Hewlett-Packard Co. (HPQ) in 2006 and lost the second position to China's Lenovo in the third quarter of 2011. According to Gartner, Lenovo overtook HP as the world's top PC vendor in the third quarter of 2012.

Dell's software and peripherals revenue for the third quarter fell 11% from last year, while server and networking revenue for the quarter rose 11%.

Dell is the world's third largest maker of server computers behind International Business Machines Corp. (IBM) and HP.

Services revenue for the third quarter declined 1% year-over-year, while storage revenue fell 16% from a year earlier.

For the third quarter ended November 2, 2012, Dell reported net income of $475 million or $0.27 per share, compared to $893 million or $0.49 per share for the year-ago quarter.

Excluding items, adjusted net income for the third quarter fell to $679 million or $0.39 per share from $983 million or $0.54 per share in the prior year quarter.

On average, 31 analysts polled by Thomson Reuters expected the company to earn $0.40 per share for the third quarter. Analysts' estimates typically exclude special items.

Revenue for the third quarter fell 11% $13.72 billion from $15.37 billion in the same quarter last year. Third quarter revenue declined 6% sequentially. Twenty-eight analysts had a consensus revenue estimate of $13.90 billion for the third quarter.

During the third quarter, Dell paid its first ever quarterly cash dividend of $0.08 per share.

Looking forward, Dell said it expects the challenging global macro-economic environment to continue in the fourth quarter and hurt its results. The company expects fourth quarter revenue to grow 2% to 5%, implying revenue of $13.99 billion to $14.41 billion. Analysts currently expect the company to post revenue of $14.49 billion for the fourth quarter.

Dell maintained its full year adjusted earnings outlook of at least $1.70 per share. Analysts currently expect the company to earn $1.73 per share for the current fiscal year.

Dell was among the worst sufferers among the technology giants during the recession In order to drive growth, Dell resorted to acquisitions, cut thousands of jobs, closed plants and entered the smartphone market.

Of late, Dell is acquiring or has signed deals to acquire small companies to expand its business. After losing the takeover battle for data storage firm 3PAR Inc. to larger rival HP, Dell acquired Compellent Technologies, Inc. last year. In August 2011, Dell completed its acquisition of security software maker Force10 Networks.

In 2012, Dell has completed the acquisitions of AppAssure, Clerity Solutions, SonicWALL, Inc and Wyse Technology Inc. In September, Dell completed its $2.4 billion acquisition of Quest Software.

by RTTNews Staff Writer

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