Dell Predicts Weak Government Revenues

In addition to reporting a 28 percent increase in second-quarter profit, Dell predicts revenue growth of 13 percent to 16 percent year over year in the third quarter. That&'s compared to Wall Street&'s 17 percent forecast, according to Reuters. With little elaboration, Rollins said that the lower forecast was due to weak U.S. government sales, as well as low-priced consumer PCs.

“There are a couple of likely drivers of this,” says Adam Robinson, CEO of Irvine, Calif.-based Govplace. “The biggest I suspect is a general increase in the government&'s demand for all purchasing opportunities to be specified as best value; in other words, they accept less expensive products with equal specifications.” That makes Dell easier to beat, he says. “At the same time, with the increased acceptance of government Web procurement vehicles, more resellers are being made aware of opportunities that would have previously gone to Dell and capturing them with ‘best value&' alternatives.”

According to the standard market cycle though, Dell and other manufactures could see a bit of a jump in revenue in fourth quarter, followed by another dip in the first half of 2006. “A lot of prime contractors, such as Lockheed Martin for example, fulfill government contract buying by end of September, and capital equipment buys by the beginning of December,” says Terry Castro, vice president of Tampa, Fl.-based American Data and Computer Products. Those capital equipment buys, which essentially fulfill in-house IT requirements, often push up revenues for manufacturers in the last quarter of the year. “Then, first quarter for everybody is historically slow. The federal fiscal year is over and their budgets haven&'t been reprocessed; and your primes that run on calendar year have exhausted their budget. Second quarter it picks up again.”

Whether or not Dell&'s government revenues follow that schedule and recover mid-2006 remains to be seen. While Castro and other government VARs counter Rollins&' predictions and expect to see strong Dell sales themselves in the third quarter, Robinson wonders what the next government fiscal year will bring. “It will be interesting to see how Dell reacts to that. It is certainly a case of a large monolithic marketing company losing market share to a fragmented, more entrepreneurial industry.”