Dell Warns PC Market Hasn't Yet Hit Bottom

By JUSTIN SCHECK

Dell Inc. warned that the painful slump in demand for its personal computers has yet to reach a bottom, as the PC maker posted a 63% drop in quarterly profit amid a 23% decline in revenue.

The results mark the third consecutive quarter of shrinking sales and profit at the company, whose turnaround efforts and new products have been unable to arrest its slide.

The Round Rock, Texas, company said its results were driven by weak business spending during the three months ended May 1. It's profit was also dragged down by restructuring charges.

Brian Gladden, Dell's chief financial officer, said the company has yet to see "a bottom" to the prolonged slump in technology spending. "Demand is still not improving," he said.

Dell's results, along with weak results from rival Hewlett-Packard Co. last week, snuffed recent hopes that tech spending might be picking up.

Executives at tech giants Cisco Systems Inc. and Intel Corp. recently said spending on technology seemed to be leveling off. But that optimism hasn't extended to the PC market, which still accounts for about half of Dell's revenue.

Dell reported a 20% decline in laptop revenue and a 34% drop in desktop PCs for the quarter. The division that sells to large companies posted a 31% revenue slide.

The falloff reflects "very bad demand" among the large corporate customers that make up a sizeable chunk of Dell's business, said Jayson Noland, an analyst at R.W. Baird.

Dell has been trying to become less reliant on corporate customers since early 2007, when founder Michael Dell returned as chief executive. Mr. Dell has since tried to expand into areas like consumer PC sales and tech services to run businesses' computer systems.
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But the turnaround attempt has proceeded slowly. "The tough economic conditions have certainly put a crimp in the plans," said Bill Kreher, an analyst at Edward Jones.

Overall, Dell reported earnings of $290 million, or 15 cents a share, down from $784 million, or 38 cents a share, a year ago. The latest period included restructuring expenses of $185 million. Revenue was $12.34 billion, down from $16.08 billion.

Dell's consumer revenue of $2.8 billion was down 16% from last year despite a 12% increase in consumer PC shipments. The services division saw an 8% revenue drop from last year to $1.2 billion, even though Dell has invested in acquisitions and hiring.

Recently, Dell has indicated it may make more acquisitions to generate new growth. The company this month tried to hire David Johnson, the vice president of corporate development at International Business Machines Corp., to be in charge of mergers and acquisitions.

But IBM sued Dell last week over its attempt to lure Mr. Johnson, a 27-year IBM veteran, alleging that Mr. Johnson's contract prohibits him from working for a competitor for a year after leaving IBM.