Thu, Aug 18, 2011 - Page 10 News List

Dell’s slashing of 2012 forecast could spark trend

Reuters, SAN FRANCISCO

Dell Inc slashed its revenue forecast for next year as an already weak outlook for technology spending this year worsened, sending its shares more than 7 percent lower.

The No. 2 personal computer maker on Tuesday cut its full-year revenue growth estimate to just 1 percent to 5 percent, from 5 percent to 9 percent previously, citing growing uncertainty about whether government and corporate spending on everything from servers to software can hold up in the face of flagging economic growth.

Dell’s move did not bode well for rivals such as Hewlett-Packard Co. HP, the world’s No. 1 PC maker, striving for a turnaround after several disappointing quarters, will report quarterly earnings today.

“We are going to see similar trends” with HP, said Brian Marshall, analyst with Gleacher & Co, noting “maybe some weakness on the topline.”

He also noted a “pause” in technology business spending.

The company founded by Michael Dell has consistently beaten Wall Street expectations this year, a result of expanding its footprint in higher-margin businesses such as servers, storage and computer services.

“From a market standpoint, clearly there’s a different demand dynamic as you think about revenue growth,” Dell chief financial officer Brian Gladden said in an interview. “It’s a bit of an uncertain environment.”

Dell slid 7.65 percent to US$14.60 after hours, from a close of US$15.80 on NASDAQ.

Before Tuesday’s results, many analysts had already lowered projections for this calendar year as global markets tanked and economies headed for choppy waters. Corporations like Dell may be forced to reduce their full-year targets as demand slows.

During an annual analysts’ day in June, executives pledged to maintain their pace of acquisitions — it completed its US$960 million purchase of Compellent in February — to gain access to corporate clients, and to safeguard margins.

However, Wall Street on Tuesday focused on anemic revenue growth, ignoring a 22.5 percent gross margin in the second quarter that actually exceeded analysts’ projections by more than a full point.

Dell, which in May forecast strong government spending and a good back-to-school season, recorded sales of just under US$15.7 billion in its fiscal second quarter ended July. It added that sales this quarter would likely stay flat from last quarter.

Dell posted net income of about US$890 million, or US$0.48 a share, in the quarter ended July, versus US$545 million, or US$0.28 a share, a year earlier.

Excluding certain items, it earned US$0.54 a share.

Analysts had expected US$49, according to Thomson Reuters I/B/E/S, but it was not immediately clear if that estimate was comparable

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