Dell Q4 profits fall despite sale rise


Dell Q4 profits fall despite sale rise

Microscope contributor

Dell's fourth quarter profits were dampened by increased price competition in the consumer market and component price rises which have spilled into fiscal 2011.

Income for the period grew 21% sequentially but fell 2% on last year to $544m, despite an 11% upward swing in volumes to $14.9m

Brian Gladden, Dell CFO said consumer unit revenues went up 25% sequentially and 11% year-on-year to $3.35bn but gross margin dropped 90 basis points as operating profits fell to a "disappointing" $9m.

"Consumer margins were disappointing in the quarter due to aggressive market pricing dynamics and the fact we also experienced components pressure early in the fourth quarter," he said in a conference call last night.

He pointed to actions the firm had taken to improve the profitability of its consumer business including consolidating the unit with its SME division under one leader, and reducing general and administrative (G&A) costs.

Components tightness has emerged in various pockets across the industry as demand improves and Dell warned it expected the issue to continue as suppliers had been "reluctant to add additional capacity".

Sales at the Large Enterprise division went up 8% on last year and 23% on last quarter to $4.2bn, Public Sector grew 16% year-on-year and 3% sequentially to $3.8bn, and SME rose 10% on fiscal 2009 and 13% sequentially to $3.3bn.

"For the year, these businesses were hardest hit by the slowdown in the economy - collectively we shipped nearly 5 million fewer units this year than we did a year ago, revenues in these three businesses fell 15% year-on-year," said Gladden.

But the combined gross margins for the businesses actually improved on the previous year due to a shift in the mix to higher margin servers, storage and services.

Gladden said he was "optimistic" about the demand environment in commercial but added it may have been due in part to end of year budget activity. 

Costs have fallen $3.9bn since Dell embarked on an aggressive reduction programme - $100m short of the original target set two years ago - achieved in part through job cuts and moving to contract manufacturing.

"Nearly 52% of our product flows through contract manufacturing and the capacity is in place to move this percentage significantly higher," added Gladden.

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