Dell records decline in fiscal Q3 2009 profits


Dell records decline in fiscal Q3 2009 profits

Paul Kunert

Despite getting rid of more than 11,000 staff worldwide and slashing op-ex by $1bn in a year, Dell has honed in on further cost cutting actions as it recorded fiscal third quarter results for 2009.

This prudent management bears all the hall marks of a company that is battening down the hatches in anticipation of a bumpy ride, following a 3% decline in revenues to $15.1bn for the three months ended October and a 5% fall in profits to $727m .

"As we have indicated throughout this fiscal year Dell has seen weakening global IT end-user demand and we expect this weaker demand environment to continue for the foreseeable future," said Brian Gladden, Dell CFO.

During the quarter Dell let go a further 2,200 staff taking the total to 11,600 since fiscal Q2 2008, considerably more than the initial figure the company committed to. The industry heavyweight plans on realising total cost savings of $3bn.

"In this environment we'll continue to be very aggressive with costs, it's the one lever we can control," Gladden added. Last month, it emerged that Dell has also put in place a hiring freeze.

The reduction in overheads was part of the company's strategic transformation outlined by CEO Michael Dell last year which also includes the outsourcing of production (one third of Dell products are now contracted) and a focus on enterprise technologies.

"We are focused on expanding our presence in the enterprise. Customers are looking for technology to drive productivity and IT simplification and they want it to be cost effective," said Dell.

A shift to higher margin enterprise kit resulted in an 8.7% rise in gross margins during the quarter to 18.8% of revenues as enhanced services revenues grew 7% to $1.4bn and software and peripherals rose 2% to $2.58bn.

Notebook and desktop sales, accounting for 32% and 27% of total revenues, saw revenues fall 14% and rise 3% respectively to $4bn and $4.8bn. Server sales were down 5% to $1.5bn and storage sales were flat at $622m.

The gross margin mix was also helped by Dell's decision to walk away from unprofitable business, said its CEO.

"We are clearly choosing profit over growth but believe that the changes we are making to our cost structure will allow us to achieve both over time," said Dell.

Commercial sales represented 82% of Dell revenue and 96% of profits over the last four quarters.

During this last period the worldwide consumer business saw 10% revenues growth to $2.8bn and a 561% rise in profits to $112m.

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