With revenue flat, Dell is shifting to higher profit areas – and promising a Windows 8 tablet
Dell’s third quarter revenues missed their forecast, but the company argues it has continued investing in long term profits and promised a Windows 8 tablet, as part of a continued enterprise focus.
The company’s revenue was flat – going to $15.39 billion (£9.76bn) from $15.37bn (£9.75bn) in the previous quarter, when analysts had hoped for $15.7bn (£9.96bn). Profits rose from $822 million (£521m) to $893 million (£566m) – the company pointed out it was moving away from low-margin low-end PCs, towards enterprise products and services.
Windows 8 Tablet
“We are seeing growth in the data centre,and services to support that,” said Stephen Murdoch, Dell’s senior vice president for solutions and services in EMEA. “We are very pleased with Q3 – it is a steady step forward.”
Murdoch reiterated Dell’s strategy of acquisition, and promised continued investment in research and development to reinforce its position in the data centre, and with big customers.
Why was the quarter not as good as hoped? “Corporate business is strong across Europe, but the public sector is weak,” he said. Small to medium businesses (SMB) demand is strong, he added.
“We are investing for the future, and we haven’t flip-flopped like our competitors,” he said, in an obvious dig at Hewlett-Packard. “We’ve also built solution centres in three countries in Europe, UK France and Germany.”
The company also turned its back on about $2 billion (£1.27bn) of business in low-end PCs, but is planning to keep in business laptops and tablets he said, leading up to the Windows 8 device.
The company has already launched a Windows 7 tablet – the Latitude ST – which Murdoch says is a step towards the eventual Windows 8 device.
“We have a Windows 7 tablet. That is to get the form factor,” said Murdoch. “We are working closely with Microsoft.”Analysts generally supported Dell’s take on the figures.
“Dell’s aggressive investment in acquisitions, R&D and sales and marketing to transition from high-volume hardware manufacturer to trusted IT advisor is resulting in consistent profit expansion while pressuring near-term revenue growth,” said Krista Mcomber of TBR. “Dell has acquired five companies to-date in 2011 and its R&D expense annual run rate is approaching $1 billion – keeping revenue flat annually for the second consecutive quarter at $15.4 billion while supporting operating margin growth of 70 basis points annually to 7.4% in 3Q11.”
“TBR believes Dell has positioned to offset weak spending in the consumer segment and the public sector in mature markets going forward. Dell will invest cautiously, continuing to align R&D and sales and marketing spend on growth opportunities around enterprise solutions,” said Macomber.