Dell Reports Q3 Sales as PC Demand Rises

By Jessica Davis  |  Print this article Print

PC maker Dell announces its third-quarter earnings, but revenue didn't climb as much as analysts had forecast based on returning PC demand.

Dell revenue climbed sequentially to $12.9 billion for the third quarter, but did not meet analysts' consensus predictions as shipments stayed flat sequentially and down 5 percent from the same period a year ago, the company reports Nov. 19.

Revenue climbed 1 percent sequentially and fell 15 percent from the same period a year ago. Net income came in at $337 million compared with $727 million during the same period a year ago.

But Dell reports that shipments to large enterprise and small and midsize business customers rose sequentially in the third quarter. Dell's enterprise-systems business server and storage revenue climbed 5 percent and showed particular strength in year-over-year EqualLogic sales, the company says.

Dell's Large Enterprise revenue climbed 4 percent sequentially to $3.4 billion, but fell 23 percent from the same period a year ago.

SMB revenue at $3 billion climbed by 5 percent sequentially but was down 19 percent year over year. Public revenue at $3.7 billion fell 3 percent sequentially and 7 percent from the same period a year ago. Consumer revenue sat at $2.8 billion, flat from the second quarter and down 10 percent from a year ago.

"We are seeing improvement in overall underlying IT demand that is continuing into the fourth quarter," says Chairman and CEO Michael Dell in a statement. "The same is true with momentum in Dell's business, specifically in our Large Enterprise and SMB segments. The launch of Windows 7 is being very well received by SMBs and consumers, and we'll see the benefits of that more fully in our fiscal Q4."

Looking ahead, Dell says it expects seasonal demand improvement in the consumer business in the fourth quarter while it expects demand in its Public business to be lower. Dell says it expects fourth-quarter revenue to improve over the third quarter.

The results fell short of analysts estimates, based on better than expected PC market demand. Analyst company Bernstein Research had raised its estimates on Dell's revenues for third-quarter revenue to $13.4 billion from $13.2 billion just before Dell released its results.

"Our higher revenue estimate is due to better-than-expected PC market demand in calendar Q3 (1 percent year-over-year growth versus our expectation of 5 percent year-over-year decline) and a weakening dollar," writes senior analyst Toni Sacconaghi in a report previewing Dell's earnings.

Sacconaghi notes that in the third quarter, PC units grew by 18 percent quarter-over-quarter—the largest second to third quarter increase in at least 11 years.

"This was surprising since much of the strength appeared to have been driven by consumers, and immediately preceded Windows 7's launch on Oct. 22," Sacconaghi says. "We believe that some of the seasonally high growth may have been driven by continued aggressive pricing on older Vista units and some modest build of Win 7 offerings, but note that Dell would likely not have benefited materially from the latter, given its more limited retail presence."

The Bernstein report says Dell is in a position to take advantage of an upturn in PC market volumes that may be triggered by an economic recovery.

"Dell's business model is highly transactional, and our analysis indicates that an improvement in demand (in part due to an expected corporate upgrade cycle in 2010) could material boost both gross and operating margin," the company concludes.

Jessica Davis covers the channel for eWeek and Channel Insider. Her technology journalism career began well before anyone heard of the World Wide Web and has included stints at Infoworld, Electronic News/EDN, and the Philadelphia Business Journal. Her work has also appeared on CNN and Forbes.com. She has covered hardware, software and networking, as well as the business side of technology. She has won several journalism awards, including a national ASBPE award for best staff-written column, and was named Marketing Computers hardest working tech journalist on their inaugural list of top tech journalists. Jessica can be reached at jessica.davis@ziffdavisenterprise.com

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