Recession Hits Dell in Q4

Following Hewlett-Packard’s announcement last week of a tougher than expected quarter, it’s no surprise that its computer hardware rival Dell would do the same or worse when it announced fourth quarter earnings on Feb. 26.

That was the case today when Dell released earnings well below analyst estimates. Dell reported Q4 net income of $351 million compared to $679 million, a 48 percent drop from the same period a year ago.  Revenues fell to $13.4 billion from nearly $16 billion, a 16 percent drop from the same period last year.  Earnings per share came in at 18 cents, far short of analysts’ projected 26 cents.

In report previewing Dell’s expected earnings, Bernstein Research noted that a rapid deterioration in technology spending over the last three months had caused the firm to lower its PC forecast for 2009 – to an actual decline of 7.3 percent from the prior forecast of 4.9 percent growth.

Dell said in its earnings announcement that it will increase its cost reduction initiative from $3 billion annually by the end of 2011 to $4 billion.

"We now have a clear view to additional opportunities and are raising our cost-reduction target to $4 billion," said Brian Gladden, Dell’s chief financial officer, in a formal statement issued by the company. 

The move encouraged Bernstein Research senior analyst Toni Sacconaghi, who said in a report issued following the earnings announcement that "We were most encouraged by Dell’s continued commitment to drive profitability over growth."

Pointing to the additional $1 billion in cost reductions, Sacconaghi says that he believes half of the incremental cost savings could come from further workforce reductions "which would imply up to 5,000 additional headcount reductions or an approximate 7 percent reduction in force."

Dell said revenue in its Americas Commercial business was $6 billion, a 17 percent decline on a 23 percent decrease in units.

EMEA commercial revenue was $3 billion for the quarter and saw a 17 percent decline and a 19 percent decline in product shipments.

Revenue in Dell’s Asia Pacific Japan commercial business came in at $1.4 billion in Q4,a 24 percent decline on a 19 percent decrease in shipments.

The global consumer business did a little better with a shipment increase of 18 percent. But revenue still declined 7 percent to $3 billion, Dell said in its formal statement.
Looking ahead Dell said that "global IT end-user demand will continue to be uncertain and challenging," but provided no forecasts for revenues.