Dell Inc forecast lower gross margins in this month’s quarter as demand shifts toward cheaper computers such as netbooks and as prices of components are rise.
Dell, which has been working through a painful turnaround effort, on Monday estimated a “modest decline” in fiscal second-quarter gross margins but did not give a specific forecast.
It also said it expects a “slight” sequential increase in revenue for the quarter.
“We continue to believe that customers are deferring IT purchases, and that we will see demand return to more typical levels at some point,” chief financial officer Brian Gladden said in a statement.
While Gladden said demand for Dell’s products and services seems to have stabilized, he said that that varied significantly by segment and geography.
The outlook from the world’s No. 2 maker of personal computers came on the eve of its analyst day in Austin, Texas.
Dell has not been providing forecasts in its quarterly earnings reports, so the announcement provided Wall Street with its first financial targets in some time.
“Dell’s story has been all about profitability over growth, so if the product mix is shifting to the low end and that’s impacting profitability, then that really hurts Dell’s value proposition,” Collins Stewart analyst Ashok Kumar said.
Dell, which is in danger of being surpassed by Acer Inc (宏碁) in the global PC market, saw revenue fall 23 percent from a year ago to US$12.3 billion in the first quarter. Gross margin slid to 17.6 percent, or an adjusted 18.1 percent.
The company is targeting in the long-term 5 percent to 7 percent compound annual sales growth, operating income at or above 7 percent of revenue, and cash flow from operations exceeding net income.
Dell is seeking to diversify its revenue base to better compete with Hewlett-Packard Co and IBM Corp. It has been upfront in its desire to be acquisitive and Wall Street is hoping for hints on its strategy at the analyst meeting.
Analysts expect Dell to focus on acquisitions in software, services and storage as it looks to become less reliant on its commodity PC and hardware businesses. Potential targets include Acer, smartphone maker Palm Inc, storage equipment company NetApp Inc and infrastructure software maker Citrix Systems.
Many analysts believe Dell is on the hunt for a deal size of around US$1 billion or less. Its largest-ever buy was data storage network company EqualLogic for US$1.4 billion in 2007.
“You’d get a higher return on the investment by making smaller acquisitions that are easier to integrate and that they can more immediately sell into their install base or generate cross selling opportunities,” Pacific Crest Securities analysts Andy Hargreaves said.
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