SAN FRANCISCO — Dell’s sales flattened in its latest quarter as government spending declined and the company pared low-margin sales, but its net income rose 63 percent.
The mixed results on Tuesday combined with a lowered revenue forecast for the rest of the year to send Dell’s shares down 7.9 percent in after-hours trading to $14.55. Dell said that net income in the quarter ending July 29, the second of its fiscal year, rose to $890 million, or 48 cents a share, from $545 million, or 28 cents, a year ago..
The company said revenue grew 1 percent to $15.66 billion from $15.53 billion.
The adjusted income of 54 cents per share exceeded analysts’ expectations, while revenue was slightly below expectations. Analysts had predicted 49 cents a share on that basis and revenue of $15.76 billion, according to a survey by Thomson Reuters.
Brian T. Gladden, chief financial officer for Dell, attributed the flat revenue to a strategy of eliminating low-margin products in the consumer sector and paring its business of selling software from other companies.
But Mr. Gladden acknowledged that demand for Dell’s products weakened because of the economy. “It’s clear that the demand environment is weaker and a bit more uncertain than what we had in our previous view,” he said.
The company, based in Round Rock, Tex., showed mixed results in the face of a weakening economy that is causing companies to think hard about buying new technology. Large corporations increased their spending with Dell just 1 percent to $4.6 billion, raising concern that they will reduce technology equipment purchases during any further downturn.
Government sales weakened because of tight budgets, in keeping with a pattern at other technology companies like Cisco Systems. Sales to public agencies, schools and hospitals fell 3 percent to $4.5 billion during the quarter.
Brian Marshall, an analyst with Gleacher Company, pointed out that the economy did not seem to have affected Apple, which had routinely reported record earnings despite the slowdown. But he called Dell’s focus on higher-margin products a sound, but slow, strategy. “They are not going to turn that tanker ship around in a short amount of time,” he said.
Dell, the second largest maker of personal computers behind Hewlett-Packard, is trying to expand beyond its roots in laptop and desktop computers to higher margin products like servers and data storage for corporations. The effort is showing modest results in servers and networking equipment, which grew by 9 percent, to $2.1 billion, while services grew 6 percent to $2 billion.
Dell’s consumer business remained sluggish with a 1 percent increase in sales to $2.9 billion. Shoppers were reluctant to buy new laptops and desktop computers, partly because of the economy, but also because they preferred smartphones and Apple iPads.
Consumers account for around 20 percent of Dell’s overall revenue. Dell sells mobile phones and the Streak tablet to consumers, but they have failed to get much traction.
The company raised its expectations for operating income for the year to a gain of 17 percent to 23 percent, from 12 percent to 18 percent. However, it lowered its forecast for revenue growth to 1 percent to 5 percent, from 5 percent to 9 percent.
Dell said it expected third-quarter revenue to be flat compared with the second quarter, far short of the $16.2 billion that analysts had expected. Dell’s shares had gained 1.9 percent in regular trading to close at $15.80.
Article source: http://feeds.nytimes.com/click.phdo?i=799cca150bba9be9bf3a47b5880bf36f