Dell Computer Corp had a fiscal second-quarter loss, its first since 1993, after the biggest direct seller of PCs slashed prices in response to slumping demand. The company expects sales and profit this quarter to trail estimates.
The loss in the period ended Aug. 3 was US$101 million, or $0.04 a share, compared with net income of US$462 million, or US$0.17, in the year-earlier period, the company said yesterday after regular US trading ended. Sales fell 0.8 percent to US$7.6 billion.
PC-industry sales fell in the calendar second quarter for the first time in 15 years as consumers and businesses spent less. Dell has responded by cutting prices, which has helped it grab market share from rivals yet makes each sale less profitable. The slowdown may last until next year, when companies must start replacing old PCs, chairman and chief executive Michael Dell said.
"They are not seeing a back-to-school season materialize," said Eric Rothdeutsch, an analyst at Robertson Stephens Inc who owns no Dell shares. "It's not a positive sign that the economy is turning around; it's sign that things are getting worse." Fiscal third-quarter profit will be US$0.15 to US$0.16 a share on sales of US$7.2 billion to US$7.6 billion, Dell chief financial officer James Schneider said on a conference call. Analysts had expected profit of US$0.17 on sales of US$7.9 billion, according to Thomson Financial/First Call.
Shares of Austin, Texas-based Dell rose as much as 0.30 euros, or 1.1 percent, to 27.10 euros (US$24.70) in Germany Friday. They fell to US$24.76 in after-hours US trading, after closing at US$25.38 in regular trading. Dell shares have gained 46 percent this year.
Excluding US$742 million in expenses in the recent period for the job cuts, plant closings and losses in the company's Dell Ventures investment business, second-quarter net income would have been US$433 million, or US$0.16 a share. On that basis, profit was in line with the average estimate of analysts surveyed by First Call.
This is Dell's first quarterly loss since the second quarter of fiscal 1994, when it reported a loss of US$75.7 million, or US$0.03 a share, on revenue of US$700.6 million.
Michael Dell said companies are delaying purchases, particularly those in the telecommunications and Internet industries.
"The sharp slowdown in spending has been the most pronounced in our industry's history," he said. "Tech spending has decelerated at an alarming rate."
Some analysts are hoping that the PC industry will pick up with the introduction of Microsoft's new operating system, Windows XP, scheduled for release on Oct. 25.
Dell reiterated his expectation that sales will accelerate next year because the last big upgrade cycle was in 1999, meaning PCs are approaching three years of age.
"We don't see them [companies] going to four or five years unless you have a protracted economic decline, and we don't see that," Dell said.
"We are looking towards the spring of 2002 when we see a more robust demand cycle from corporations." Dell doesn't expect to fire more employees on top of the 5,700 job cuts that have been announced, said Kevin Rollins, co-president.
"We think we're in pretty good shape," he said. "If our competitors get more aggressive and the economy deteriorates, we'll do what is necessary."
Gross margin, or the percentage of sales left after deducting production costs, narrowed to 17.5 percent from 21.3 percent in the year-earlier period because of "intense competition," the company said in its statement.
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