Computer maker Dell Inc said on Thursday its fiscal second-quarter profit fell 17 percent, hurt in part by PC price cuts. Both earnings and margins fell short of Wall Street estimates and Dell shares plunged.
For the three-month period that ended Aug. 1, Dell’s earnings dropped to US$616 million, or US$0.31 per share, from US$746 million, or US$0.32 per share in the same period last year.
Excluding amortization and business realignment charges, Dell said it would have earned US$0.33 per share. Analysts surveyed by Thomson Reuters had forecast a profit of US$0.36 per share.
Investors sent Dell shares down US$2.55, or 10 percent, to US$22.66 in after-hours trading following the announcement.
Sales rose 11 percent to US$16.4 billion, ahead of Wall Street’s view of US$15.9 billion in sales. And Dell said operating expenses fell to their lowest point in six quarters.
But the company slashed PC prices too sharply in the quarter, offsetting its attempts to cut costs and eroding its gross margin.
Analysts had hoped Dell’s margin would hold steady at last quarter’s level of 18.4 percent, but instead it sank to 17.2 percent.
In a conference call, chief financial officer Brian Gladden said Dell made “strategic pricing” changes in Europe, the Middle East and Africa to speed up growth. The company also deferred some services-related profit from that region to a later quarter.
“If I look at the situation in the second quarter, we would have to say it was more self-inflicted,” chief executive Michael Dell said in a conference call.
“Whenever you’re restarting growth, what I can tell you is, it’s an imprecise process. [There were] some parts of the business where we were probably too aggressive,” he said.
Sharon Cross, an analyst for Cross Research, said that Dell bulls were hopeful that if the company was aggressive in pricing but managed to cut costs somewhere in the supply chain, the company could still pull off flat margins.
“That obviously is not the case,” said Cross, who rates the stock a “sell.”
Dell said the company would reach its goal of 8,900 job cuts in the current third quarter. Since the target was set last year, Dell has already cut more than 8,500 workers, excluding the impact of acquisitions.
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