Dell Inc’s quarterly gross margin missed Wall Street expectations, hurt by sales of lower-priced personal computers for consumers and a rise in costs for memory chips and other components.
The disappointing margin, which reflects Dell’s dependence on the computer hardware market, sent its shares down 5 percent in extended trading on Thursday and overshadowed its stronger-than-expected profit and revenue for the quarter.
Larger rival Hewlett-Packard Co (HP), which posted stronger results on Wednesday, had benefited from a more diversified revenue base than Dell, with income from software and services as well as hardware.
“I think people are concerned on the gross margins, clearly the revenue is strong, they had strength in the PC business as well as in the servers business, but there wasn’t as much leverage as maybe people had expected,” Cross Research managing director Shannon Cross said.
Dell is heavily dependent on selling PCs to US businesses, so it suffered during the economic downturn but is expected to improve this year as technology spending recovers.
The company, which depends on desktop and laptop sales for more than half of overall revenue, has stressed profitability over growth and stayed clear of the PC price war waged by HP and Acer Inc, which displaced Dell as the world’s No. 3 PC maker last year.
CFO Brian Gladden said average selling prices “held up pretty well” in the fourth quarter compared with the third, but added that gross margins were hurt by a larger mix of lower-cost PCs for consumers, and some higher component costs, including DRAM memory.
He said there were positive overall signs in the technology industry, and that Dell is “cautiously optimistic” about how the new fiscal year is starting.
“We saw some very encouraging market demand growth return to the business in the fourth quarter,” he said.
Dell, whose results had missed Wall Street targets for three of the previous eight quarters, said net profit fell to US$334 million, or US$0.17 a share, in its fiscal fourth quarter ended Jan. 29, from US$351 million, or US$0.18 a share, one year ago.
Excluding one-time items, profit was US$0.28 a share, a penny above the average Wall Street forecast, Thomson Reuters I/B/E/S said.
Revenue rose 11 percent to US$14.9 billion, also beating the average estimate of US$13.8 billion. But adjusted gross margin was 17.4 percent, compared with the average estimate of 18 percent. HP’s margin was 22.8 percent in the January quarter.
Cross also said Dell’s operating expenses did not fall as much as some investors had hoped. Dell reported adjusted operating expenses at 12.1 percent of revenue, versus 12.8 percent a year ago.
CEO Michael Dell said he sees the start of the hardware refresh cycle and is looking at smaller M&A deals.
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