Dell EMEA pricing to blame for profit decline

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Dell EMEA pricing to blame for profit decline

Paul Kunert

Despite hailing global gains in revenues and market share, Dell saw profits decline in its second fiscal quarter as gross margin took a hit due to overly aggressive pricing in EMEA.

For the three months ended 1 August 2008, Dell revenues increased 11% to $16.4bn on the back of a 19% rise in unit shipments - 1.4 times the industry average - but profits after tax fell 17% to $616m.

In a conference call with analysts, Brian Gladden, Dell senior vice-president said it had gained market share across all geographies and product categories that equated to one global percentage point.

But he conceded "we know we can improve our profitability gross margin declined by 120 basis points as we took strategic pricing actions in EMEA ahead of cost improvements."

The market has been aggressive this year as vendors try to hold their own against rivals but Gladden said its issue was "more self inflicted".

"In EMEA we also had an increase in the deferral of services revenues driven by change in how we market our services offering to the region," he continued, adding this profit would be recognised in future results.

Gross margins were also impacted by the retail mix shift in Dell's consumer business as it continues to expand its footprint, but the sequential decline was partially offset by a reduction in operating expenses.

Gladden said it had reduced employee levels by 1,500 in the quarter, taking the tally to 8,500 since the first quarter of 2007 and the targeted number of 8,900 would be realised in this current fiscal quarter.

On a regional basis, EMEA revenues grew 10.8% year-on-year to $3.5bn but declined 8% sequentially, operating profits dived from $202m a year earlier to $72m.

The Americas saw revenues climb 5.4% to $8bn and operating profits fall to $700m, compared with $757m. Asia Pacific and Japan experienced a 16.4% increase in revenues to $2bn and profits rise from $142m to $157m.

The channel did not get a mention during Dell's conference call, in stark contrast to the previous quarter when partners were praised.

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