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PC maker Dell suffers 47 percent dive in profit

Another American firm suffers from the weakening global demand for personal computers. Dell Inc, the former top PC maker in the world, has revealed that its 3rd quarter profit decreased 47 percent as demands by pc consumers, large corporations, and growing popularity of mobile computing affects the overall PC sales throughout the world.

The company’s pc business division is encountering tough rivalry from mobile makers as more and more people shifts from traditional computing to tablets and smartphones in doing what they usually do with PCs. Dell’s corporate customers are also cautious in spending as the economy is still not showing enough signs of recovery.

Dell said that it “sees the challenging global macroeconomic environment continuing in the fourth quarter.”

One of the pioneers in computer supply chain management, Dell is also dealing with competitors from Asia like the China-based Lenovo. To manage profits, Dell tries to bolster growth by concentrating its services and products on corporations. It forecasts a 5 percent revenue growth this quarter though.

“Our outlook for the quarter would be generally consistent with what we typically see in terms of a seasonal pickup,” Dell said in a statement.

The company’s third quarter sales fell 11 percent translating to $13.7 billion, which is barely under the $13.89 expectation of analysts, said Thomson Reuters I/B/E/S.

Dell said its net income is $475 million or 27 cents per share for the third quarter. It previously posted $893 million or 49 cents a year ago.

Dell’s Chief Financial Officer Brian Gladden  announced in an interview that many corporate customers are not spending on technology during the quarter.

“It’s not clear what’s going to cause them to increase their spending in the short term, given the uncertainty in the economy,” Gladden said.

Its enterprise solutions tallied a 3 percent growth translating to $4.8 billion, while its server and networking revenue rose 11 percent. The big drop is on consumer business which saw 23 percent drop to $2.5 billion. The company’s sales to large corporations also decreased 8 percent to $4.8 billion during the quarter.

Shaw Wu, an analyst of Sterne Agee, said that the company’s “challenges are frankly the same as before – namely the tough macroeconomic environment and cannibalization from mobile devices using mobile operating systems from Apple and Google.”

Gladden said that the arrival of Windows 8 operating system, which features touchscreen functionality for devices and Internet-based computing, have helped boost the consumer market.

Microsoft’s Surface tablet can also hurt PC sales while sales of devices running Windows 8 software are yet to ramp up.

Gladden also attributed the weaker corporate spending on the unresolved issue that the current government is facing, the upcoming fiscal cliff.

The fiscal cliff involves a &600 billion automatic tax hikes and spending cuts at the start of 2013 if the U.S. Congress cannot decide on how to reduce the every growing budget deficit.

Spending cuts can affect customer and government spending and can cause further economic issues.

“I would tell you that the behavior we are seeing from our customers today is actually driven by that uncertainty,” Gladden added. “It’s not like it’s all going to happen overnight. It’s affecting our business today.”

As a precaution, Dell wants to make sure that it has access to cash in the event that the fiscal cliff will not be resolved. Gladden said that he will ensure that Dell has easy access to lines of credit and commercial paper.

“I would say there are several things we are doing from a planning standpoint, especially on the treasury side to ensure that we are in a position to have appropriate access to liquidity.”

source: reuters