Dell's Sales and Earnings Rise in Q3, But Outlook Concerns

Published: December 4, 2007

by Timothy Prickett Morgan

With consumer spending on the wane and therefore pressure on Dell's profits, the company's stock took a beating last week and early this week even as Dell reported substantially improved sales and profit figures in its fiscal third quarter ended November 2.

Dell said that sales rose by 9 percent to $15.6 billion, and earnings rose even faster to $766 million, up 27 percent. Unlike the PC business of Hewlett-Packard, which grew by 31 percent to hit $10.1 billion in its fiscal fourth quarter ended October 30, Dell's PC business grew more modestly. Dell's desktop PC business shrank by 1 percent to $4.8 billion, and fell sequentially by 5 percent from the $5 billion level Dell hit with its desktop PC business in the second fiscal quarter. Dell's mobile PC line did much better, growing by 19 percent to $4.7 billion, but HP had mobile PC sales growth of 49 percent in the most comparable quarter.

Dell's server and networking gear business rose by 8 percent in the quarter to $1.6 billion, with storage sales (both external disk arrays and tape storage products) rising by 8 percent to $600 million. The company's services business also edged up 7 percent to $1.4 billion in fiscal Q3, and software and peripherals sales increased by 11 percent to $2.5 billion.

In terms of sales by geography, Dell posted $9.7 billion in revenues in the Americas region, increasing by only 5 percent, while sales in Europe rose by 14 percent to $3.8 billion. The Asia/Pacific region (including Japan) increased by 18 percent to $2.1 billion.

Dell exited the quarter with $12.6 billion in cash and equivalents in its war chest, a little bit more than the current accounts payable it has outstanding. Dell announced in June that it was going to cut its headcount by 10 percent to reduce costs and boost profits, but the numbers have not gone down all that much. As of May 4, before the headcount reduction was announced, Dell had 82,800 full-time employees and 5,300 temporary workers. As of November 2, Dell had 81,900 full-time employees and 7,200 temporary employees. This doesn't seem like much headway. Expect more pain for Dell as computer component costs start to rise again--particularly if there is a slowdown in IT spending in the coming year.

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