Dell cuts guidance, showing industry uncertainty

JORDAN ROBERTSON

AP Tech­nol­ogy Writer

SAN FRANCISCO — Dell Inc.’s deci­sion to cut its rev­enue fore­cast for the year shows how com­puter mak­ers are get­ting pulled in two direc­tions at once, stretch­ing some investors’ faith to a break­ing point.

Cor­po­rate and gov­ern­ment demand for PCs has been strong for the past year, help­ing to lift the indus­try after the Great Reces­sion. But con­sumer demand has col­lapsed because of high unem­ploy­ment and the lure of new gad­gets such as tablet com­put­ers and smartphones.

Wor­ri­some new eco­nomic signs and bud­get cuts threaten to ham­per the recov­ery. They have cast doubt on the abil­ity of Dell and other PC mak­ers to lift them­selves in a mean­ing­ful way.

Dell’s stock fell more than 7 per­cent Tues­day even as the com­pany said its net income rose 63 per­cent in the lat­est quar­ter. The com­pany low­ered its rev­enue fore­cast for the fis­cal year end­ing in Jan­u­ary. It blamed “a more uncer­tain demand envi­ron­ment” than pre­vi­ously envi­sioned and a cor­po­rate deci­sion to focus on more prof­itable deals.

The down­grade fol­lowed a bar­rage of bad news in recent months about the com­puter industry’s health, and it could be a har­bin­ger of tough times for other com­puter mak­ers. Hewlett-Packard Co., the world’s No. 1 PC maker, reports its results Thursday.

Shaw Wu, a tech­nol­ogy ana­lyst with Sterne Agee, said Dell’s fore­cast was sur­pris­ingly weak and reflects eco­nomic trou­bles that are lead­ing to lower spend­ing glob­ally on infor­ma­tion tech­nol­ogy. He added that it “def­i­nitely damp­ens expec­ta­tions” for HP.

How­ever, Wu added that part of Dell’s trou­bles come as another com­pany — Apple Inc. — is ben­e­fit­ing with a stronger push into small and medium businesses.

Apple, a key player in invent­ing the PC some 30 years ago, is thriv­ing even as the PC indus­try suf­fers because of the company’s pio­neer­ing of new mar­kets, includ­ing tablet com­put­ers with the pop­u­lar iPad. Over the past week, Apple has traded places with Exxon Mobil Corp. as the most valu­able com­pany in the world.

Out­side of demand for Apple’s Mac com­put­ers, con­sumer demand for PCs has cratered, reduc­ing growth and even lead­ing to con­trac­tion in the U.S. and Europe. Although con­sumers make up only 20 per­cent of Dell’s PC busi­ness, they remain a pow­er­ful force in the dig­i­tal econ­omy. By snap­ping up iPads and smart­phones, con­sumers are demon­strat­ing that some hot new tech­nolo­gies — just not PCs — can be strong sell­ers even in hard eco­nomic times.

Mean­while, gov­ern­ment aus­ter­ity mea­sures have fueled uncer­tainty. That is threat­en­ing to depress not just gov­ern­ment spend­ing but con­sumer spend­ing as well.

The pres­sures have deep­ened doubts about the industry’s recov­ery. Dell’s rev­enue from large cor­po­ra­tions and con­sumers each rose 1 per­cent dur­ing the quar­ter from last year, to $4.6 bil­lion and $2.9 bil­lion, respec­tively. But rev­enue from the pub­lic sec­tor fell 3 per­cent to $4.5 billion.

Rev­enue from small– and medium-sized busi­nesses, where ana­lysts say Dell is los­ing ground to Apple, grew 5 per­cent to $3.7 bil­lion. But that growth rate is lower than pre­vi­ous years. In the same quar­ter last year, rev­enue grew 25 percent.

Where growth is occur­ring, it’s gen­er­ally not in West­ern coun­tries. Dell indi­cated that India and China were two of its strongest-growing regions in the three months ended July 29, its fis­cal sec­ond quarter.

After the mar­ket closed, Dell said net income rose to $890 mil­lion, or 48 cents per share, pri­mar­ily on the strength of cor­po­rate and gov­ern­ment spend­ing. Com­pa­nies have been bank­ing record prof­its and upgrad­ing older PCs and servers even as hir­ing remains tepid.

Dell earned 54 cents per share on an adjusted basis, which beat the aver­age esti­mate of 49 cents per share from ana­lysts polled by Fact­Set. A year ago, Dell earned $545 mil­lion, or 28 cents per share.

But Dell’s rev­enue fell short. Although it rose 1 per­cent to $15.66 bil­lion, ana­lysts had been expect­ing $15.75 billion.

The com­pany, which is based in Round Rock, Texas, also said it now expects rev­enue to grow 1 per­cent to 5 per­cent, com­pared with its pre­vi­ous fore­cast of 5 per­cent to 9 per­cent. The new fore­cast trans­lates to $62.1 bil­lion to $64.6 billion.

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