Dell is expecting IT spending to cool down this summer.
While the Round Rock, Texas, PC vendor posted solid financial numbers May 29, it warned that the slowing U.S. economy will continue to force enterprises and small businesses to curb their IT spending throughout the 2008 summer.
For the company’s 2009 fiscal first quarter, which ended May 2, Dell reported net income of $784 million, or 38 cents a share, compared with the $756 million, or 34 cents a share, income the company posted a year ago. Dell’s revenue for the quarter hit $16.1 billion, an increase of 9 percent. Wall Street analysts had been looking for revenues of $15.7 billion and a net income of 34 cents a share.
While Dell beat Wall Street expectations, the company did issue a warning in its quarterly report that IT spending, especially in the United States, is likely to continue to slow down through the next three to four months.
The slowdown appears to be more than the seasonal spending downturn that IT companies go through during the summer months.
“The company is seeing conservatism in IT spending in the U.S. particularly with its global and large customers as well as public, small and medium business accounts,” according to a company statement. “Dell expects the conservatism to continue through the summer, particularly as many of these customer segments are seasonally slower.”
However, CEO Michael Dell said in a call with analysts May 29 that while customers are delaying their spending now, they will stop deferring their purchases at some point as the need for new hardware, software and services increases.
“At some point, it becomes counterproductive to have tools that are too old, and so we believe and have seen through any number of cycles that there is kind of a rebound effect and so we are staying close to these large customers, and even the customers in the most dire of economic conditions have to upgrade their productivity tools,” said Dell.
Since the credit crunch and the U.S. housing crisis began late in 2007, research firms from Forrester Research to IDC have warned that the slowing U.S. economy will have an effect on IT spending, especially when it comes to large hardware purchases, such as PC replacements and new servers.
Vulnerable to Whims of Spending
A company such as Dell, which mainly deals in hardware and has most of its large IT customers in the United States, is especially vulnerable to the whims of spending in North America. Other top vendors, such as Hewlett-Packard and IBM, have tried to protect their bottom lines by growing their overseas business.
In April, CEO Michael Dell announced that the company would refocus itself and move away from its older reputation as a low-cost PC maker. Part of that strategy required the company to cut costs and explore new markets outside the United States.
In its latest quarterly report, Dell seems to be moving toward that goal.
For the first time, its revenue from overseas surpassed its revenue from the United States. During the quarter, 45 percent of Dell’s revenues came from America’s commercial market, while 24 percent came from Europe, the Middle East and Africa, and 13 percent from Asia and Japan.
Revenue from the so-called BRIC countries-Brazil, Russia, India and China-increased 58 percent year-over-year.
Dell is also moving more toward notebooks and away from desktops to follow the industry trend toward mobility.
The company’s commercial and consumer notebook revenue reached $4.9 billion, an increase of 22 percent from a year ago. Desktop revenue, on the other hand, dropped 5 percent to $4.7 billion.
In its statement, Dell did warn that it will continue to incur costs as the company continues to restructure itself, which could mean more difficult times ahead. Dell is looking to save about $3 billion in costs by 2011 and announced it had reduced its work force head count by 7,000 employees in the last year. That number excludes employees Dell inherited from its acquisitions.
In 2007, Dell had about 83,600 employees, and now the company has approximately 73,900 workers worldwide. During a call with analysts, Michael Dell indicated that further cuts in the company’s employee head count is possible in the future.