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February 22, 2012

Dell Misses Earnings Expectations for Q4, Warns of Sales Dip in Current Quarter

Dell (News - Alert) shares plummeted in late trading on Tuesday after the computer maker issued a lackluster Q4 earnings report and a dreary sales forecast for the current quarter.

Fourth quarter profit for the quarter ending on Jan. 28, 2012 fell from $927 million, or 48 cents a share, to $764 million, or 43 cents a share, representing an 18 percent drop year-over-year. Adjusted income fell a penny short of Wall Street expectations of 52 cents per share. Tuesday's report marks the first time in two and a half years that Dell missed its EPS guidance, ending a strong turnaround for a company that had seen its shares climb 25 percent on the year.

The company's sales forecast for the current quarter is $14.9 billion, well short of the $15.1 billion Wall Street estimate and seven percent short of Q4 revenue totals.

Dell pointed to the hard drive shortage stemming from the floods in Thailand as a major reason for the dip in profit. The PC maker was forced to rely on lower capacity hard drives and sell cheaper computers at a lower margin.

The two percent decline in consumer revenue is yet another symptom of Apple's (News - Alert) dominance in the mobile device market, especially in the established Western nations like the United States. Dell continued to find success in emerging, non U.S. economies, where it booked a 10 percent increase in revenue, but suffered from the influx of tablets like the iPad in its home country.

It's reasonable to suggest that overall consumer demand for Dell's products will continue to wane as emerging nations are introduced to new technologies like the iPad, unless, of course, Dell opens up the purse strings and rolls out some game-changing devices themselves.

Analysts credited the turnaround of Dell to its substantial cost-cutting measures, but noted that the earnings report proves that slicing the budget can't create long-term wins.

“They’ve been able to grow earnings because of cost management and supply-chain improvements. But you can do that for only so long," Abhey Lamba, an analyst at Mizuho Securities, told Bloomberg. "At a certain point, revenue needs to start growing or else earnings will come down.”

While acknowledging the dip in consumer revenue, Dell pointed to the uptick in enterprise and SMB sales, which were up five percent and six percent respectively. Dell services, storage and server and networking revenue also made large gains in Q4, highlighting the strong demand for business computing solutions. Dell is also hoping that its new line of ultrabook laptops will help the company make major gains in its consumer business.

Dell shares were down five percent in after-hours trading on Tuesday and fell another six percent as of mid-morning on Wednesday.

Beecher Tuttle is a TMCnet contributor. He has extensive experience writing and editing for print publications and online news websites. He has specialized in a variety of industries, including health care technology, politics and education. To read more of his articles, please visit his columnist page.

Edited by Rich Steeves


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