Dell Shares Dip Along With Margins

Dell Shares Dip Along With Margins
By Ashlee Vance
Copyright by The New York Times
July 13, 2009, 6:59 pm
http://bits.blogs.nytimes.com/2009/07/13/dell-shares-dip-along-with-margins/?th&emc=th


Dell has spent most of the recession saying that it’s chasing profits over market share. So, investors were understandably unimpressed when the company declared on Monday that it expects to report lower second quarter gross margins.
DellPaul Sakuma/Associated Press

Dell provided investors with a vague update to its business one day ahead of a meeting with financial analysts at its Round Rock, Texas, headquarters. Overall, the company said that demand for computers appears to have stabilized. In addition, Dell predicted that revenue in the second quarter, ending July 31, should be slightly higher than its first quarter revenue of $12.3 billion. Meanwhile, Dell warned of a “modest” decline in gross margins during the second quarter. It reported second quarter revenue last year of $16.4 billion.

Investors digested these disclosures and knocked close to 4 percent off Dell’s shares in after-hours trading, placing its stock price at $12.52.

“We continue to believe that customers are deferring IT purchases, and that we will see demand return to more typical levels at some point,” said Brian Gladden, Dell’s chief financial officer, in a statement. “In the meantime, we continue focusing our energy and resources on the operating initiatives that will improve the company, and position us for future success.”

The global economic downturn has proved challenging for Dell with the company losing large amounts of market share to rivals like Acer and Hewlett-Packard. Dell depends on sales of computers to businesses more than its competitors, and businesses have been more reluctant than consumers to purchase new PCs.

Like many PC makers, Dell is waiting for Microsoft to release its new Windows 7 operating system in October, which could spur business sales.

Dell executives have explained away the market share losses by saying the company intended to place a premium on keeping profits as high as possible during these tough times. As a result, analysts have kept a close eye on Dell’s margins to gauge the effectiveness of its strategy.

Dell attributed the lower margins to “higher component costs, a competitive pricing environment, and an unfavorable mix of product and business-segment demand.” The company tends to make more money off business PCs, so slow sales to corporate customers can hurt its profits.

Analysts polled by Thomson Reuters expect Dell to post revenue of $12.5 billion in the second quarter. Such a total would mark Dell’s first sequential increase in revenue in a year. It reported $16.4 billion in revenue during last year’s second quarter.