Friday, August 29, 2008
Dell Inc. posted a surprisingly steep drop in quarterly earnings and said companies around the world are cutting back on technology spending, sending its shares tumbling and sparking fears of weakness in the whole tech sector.
"They're saying lower IT (information technology) spending is spreading. That is evidence of a global slowdown in IT spending. This certainly isn't good news for tech overall," said Tim Ghriskey, chief investment officer at Solaris Asset Management, after the results were released Thursday (Aug. 28).
"Dell's outlook is for slower spending -- especially in Asia and Western Europe," he added, noting weakness in the company's profit margins as well.
Dell has cut 8,500 jobs so far out of a plan to slash 8,900, and at least one analyst said the results could presage further cutbacks.
The computer maker's profit fell 17 percent in the second quarter ended Aug. 1, to $616 million, or 31 cents per diluted share, from the restated year-ago net income of $746 million, or 33 cents per diluted share.
Excluding amortization and business realignment costs, Dell earned 33 cents per share, behind Wall Street's 36 cents per share target, according to Reuters Estimates.
Revenue rose 11 percent to $16.43 billion.
Dell also posted a disappointing drop in profit margins, to 17.2 percent of gross profit, from 19.9 percent a year earlier and 18.4 percent in the previous quarter. Operating margins also fell.
"Strategic actions to accelerate growth in certain areas of our business affected gross margins this quarter," Chief Financial Officer Brian Gladden said in a statement. Cost cuts, changes to the portfolio of products and an effort to push growth would also impact operating margins, he added.
"It's a really tough tech market and Dell is obviously cutting costs, but it wasn't enough to offset the pressure on gross margin," said Shannon Cross of Cross Research.
"What people on the Street wanted to see was revenue growth and a solid gross margin number. Because if you sell things for no profit, to some extent, what's the point? This indicates that they might have to streamline even more now."
Dell shares tumbled to $22.60 in extended trade following the quarterly report, after closing down 42 cents at $25.21 on Nasdaq.
By: DocMemory
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