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Dell posts 18 percent drop in profits as consumer business shrinks

Servers can't overcome decline in PC sales
Wed Aug 22 2012, 12:22
A Dell logo

TIN BOX FLOGGER Dell has announced declines in revenues and profits as the firm tries to move its business into the high margin enterprise market.

Dell has been telling everyone that will listen that it is no longer in the business of selling the nondescript consumer boxes that made it the second largest PC vendor in the market, instead the firm is all about high margin enterprise products such as servers, storage and networking equipment. Dell's strategy makes sense in theory but the firm revealed that its bottom line is being hit hard, with its fiscal second quarter revenues down by eight percent to $14.5bn and profits down to $732m, a drop of 18 percent from the same period last year.

Despite Dell's lacklustre financials, the firm seems to believe that it is pursuing a long-term strategy that will eventually work out. CEO Michael Dell said, "We're transforming our business, not for a quarter or a fiscal year, but to deliver differentiated customer value for the long term."

Dell CFO Brian Gladden seemed equally happy with the strategy, which resulted in a 26 per cent drop in half year profits from the previous year. Gladden said, "Our performance in the second quarter provided another proof-point that our long-term strategy is right. Growth in our PC business was challenging, as we saw a tough macroeconomic and competitive environment, and continued to focus on higher-value solutions in this business."

Gladden's statement that lower revenues and profits is somehow a "proof-point" to its strategy won't inspire much confidence. Dell might be doing the right thing by moving away from low-margin products, but given that it still needs desktops, laptops and tablets to keep its bottom line in the black, perhaps it should concentrate on putting out more machines like its XPS 13 if it wants to turn its income statement around.

Dell said that it expects revenues to fall between two and five percent in the next quarter. µ


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