Dell 2Q Sales, Earnings Hurt By Steep Drop In PC Sales

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Dell reported lower-than-expected earnings Tuesday and lowered its full-year earnings outlook as the company experienced steep declines in consumer and notebook sales during the second quarter.

The Round Rock, Texas-based vendor reported earnings of $732 million, or 42 cents per share, on sales of $14.48 billion. Excluding non-GAAP charges, Dell would have earned 50 cents per share. Analysts had expected non-GAAP earnings of 45 cents per share on sales of $14.65 billion for the July-end quarter.

In the year-ago quarter, Dell earned $890 million, 48 cents per share, on sales of $15.66 million.


[Related: Tech Data: Pricing Pressure Hurts Q2 Earnings]

Dell's Enterprise Solutions and Services revenue increased 6 percent to $4.9 billion in the second quarter, accounting for 34 percent of sales and more than half of the company's gross margin. But going forward, it will be led by former HP networking boss Marius Haas, who is replacing Brad Anderson as president of Dell's Enterprise Solutions. Anderson made a "personal decision to seek new opportunities," according to Dell.

Dell didn't field any questions about the executive change on an earnings call with analysts Tuesday.

In other areas, server and networking sales grew 14 percent, Dell-owned storage revenue increased 6 percent, Dell Services was up 3 percent and software and peripherals sales declined 9 percent.

Server revenue was up 8 percent, driven by demand for the company's "next generation servers," which accounted for more than half of server sales by the end of the quarter, according to Dell.

Networking revenue was up 94 percent off a smaller base, driven by Dell's acquisitions of Force 10 and PowerConnect.

In its release, Dell said consumer notebook sales were down 26 percent, driven by a shift to alternative mobile devices and the company's lessened focus in entry-level systems. Overall, consumer business fell 22 percent to $2.6 billion, a precipitous fall and further indication of weakening consumer spending.

"In the PC and [software and peripherals' business], the revenue deterioration was clearly above anything we expected. That's something, as we think about moving forward, we can't expect ... to happen over a long period of time," said CEO Michael Dell on a conference call with analysts. "The second half of year will be challenging, but it will stabilize as we get Windows 8 in the marketplace."

The upcoming release of Microsoft's Windows 8 as well as future Ultrabook releases will help get PC sales growth back to positive, but that might not happen until 2013, Dell said.

"We are bullish about the products we have coming along with the Windows 8 launch. Our mix of business tends to be more on the commercial side, and there's more delay on the impact of that for us as it works its way through the consumer side. As we head into next year, we will see a benefit as it works its way into marketplace," Dell said on a conference call with analysts.

NEXT: Lowered Forecast Going Forward

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