Dell Needs To Buck Up
Rekha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Dell's (NASDAQ: DELL) slump deepened in the second quarter of 2013. This was a reaction to the growing popularity of smartphones and tablets that hampered sales of the company’s desktop and laptop computers.
The second quarter earnings released recently showed the dark clouds hovering over Dell and other similar computer makers’ fate as they continue being thrashed by chic smartphones and tablets made by companies like Apple (NASDAQ: AAPL) and Samsung. The shift to mobile computing has established Apple as the most valuable company in the history of the US and now it is also expected to launch its iPad Mini in the much awaited event.
The quarterly earnings fell short of Wall Sreet's expectations. The company's shares fell after the earnings were announced. The revenue of $14.5 billion is 8% short from the previous year. The income was $901 million that is 6.2% of its revenue, ESP was also down 13% from last year. Yet all is not bleak for the company, Dell expects continued solid growth in Enterprise Solutions, Services and its software business. The company has seen an impressive growth of about 14% in the networking business as well. Revenues of Enterprise Solution and Services grew by 6% contributing 34% to the topline.
The slow economy along with popularity and acceptance of tablets and smartphones from companies like Apple and Samsung have slashed Dell's revenue in the PC business. There is a report of 26% fall in laptop sale and 9% fall in desktop sale. Due to the uncertain economic environment and competitive market, Dell expects 2-5% revenue fall by third quarter.
The launch of Microsoft's (NASDAQ: MSFT) Windows 8 seems to have intensified the fall in PC sales as consumers are holding back from making purchases in anticipation of the new Windows platform. The dealers are trying to clear off the channel inventory so that they can be ready for the new PCs. The other reason for the fall in the sale is the general slump in the demand of PCs. With attractive tablets in the market, expensive laptops or PCs stand no chance. The tablet that can function as computers are eating into the market shares of the PC.
The innovative apps are attracting more customers day by day, they seem to be more user friendly. Galaxy Note 10.1 comes with it's "S-pen," which is very useful to both the designers and students. With innovative apps Dell has to work hard to upgrade its strategies.
Dell is bolstering it's growth through acquisitions. The company announced six acquisitions, they have already closed five of them. This is going to help the company to attain higher revenues and margins. It has closed on Wyse Technology, the global leader in cloud computing and SonicWall, a leader in unified threat management and next generation firewalls. These acquisitions have helped the company to develop its cloud based solutions and security based solutions. $25 million is expected to be generated by the year end if the deal is finalized with Quest Software which can also work great for its software segment. Dell has hired Marius Haas, ex-HP chief, and he is expected to bring "great business and operational expertise" to the company. Solid growth in the enterprise business is expected.
The rise in the demand for tablet computers also caused a slide in the sale for PC makers like Dell and Hewlett-Packard (NYSE: HPQ) as consumers wait for the launch of new product release. HP, the computing giant's earnings showed a similar slide as the company reported the worst loss in its 73 year history. The company reported a 5% dip in its top line while the loss per share was $4.49. Sleek, lean ultrabooks, launched by Dell, HP, Lenovo, Intel showed no noticeable bump in the sale. PC makers are trying various strategies to come back; HP plans to revamp its business by laying off about 27,000 workers over next two years.
Dell has adopted long term strategies to transform their business, which the company's CEO says, "will not be for a quarter or a fiscal year, but to deliver differentiated customer value for the long term."
No doubt the company has faced a deep slump but one cannot simply dismiss the company. The strategies adopted may not bring out immediate results, but they may prove to be far- fetched as the company aims to be service oriented. The investors should wait as immediate profits cannot be expected, however long term benefits are in the cards.
rekhamarwah has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
