San Francisco, Nov. 11 (Reuters): Dell Inc. has said its quarterly profit fell 28 per cent and set a revenue forecast that left analysts asking whether the company had lost the growth momentum of past years.
Net income for Dell’s fiscal third quarter ended October 28 fell to $606 million from $846 million.
Analysts questioned whether the company could regain the pace of the past periods when revenue climbed 16 per cent to 18 per cent as the company sold low-cost computers directly to consumers, bypassing retailers. As the focus on cheaper computers failed to spur growth rates, the company has recently added high-end machines to boost profit.
Shares dropped slightly after chief executive Kevin Rollins announced between 9 per cent to 11 per cent revenue growth, also the fourth quarter target, was “a very healthy growth rate for a company our size” but declined to say whether the range was a long-term forecast.
The quarterly growth rate would be about half the rate of past years, and prompted analysts to ask whether Dell was cutting its forecast.
“Is Dell’s growth target for the January (2006) quarter representative of its longer-term growth, or at least this fiscal 2007 growth?” analyst Laura Conigliaro of Goldman Sachs said in an investor note after earnings were reported. “Can Dell maintain current margins?”
Rollins also backed away from Dell’s earlier target of hitting $80 billion in annual revenue in three to four years, leaving the time frame open. Revenue rose 11 per cent to $13.9 billion from $12.5 billion, down from growth of around 18 per cent in past quarters but in line with the company’s October 31 announcement.
Excluding one-time charges, profit rose 12 per cent, and the gross profit margin edged up to 18.6 per cent.
The company forecast fourth-quarter revenue of $14.6 billion to $15.0 billion and earnings per share of 40 cents to 42 cents. Analysts, on average, had been expecting fourth-quarter revenue of $14.9 billion and earnings per share of 41 cents to 43 cents before one-time items.
Texas-based Dell, whose direct-delivery model has helped it grow faster than the overall PC market for years, has had decelerating revenue growth for six straight quarters as it aggressively cut prices and faced tougher competition from rivals including Hewlett-Packard Co.
Its shares have tumbled 31 per cent this year on concern over revenue growth. The stock has lagged behind the Standard & Poor’s Computer Hardware index by 27 per cent. Dell shares trade at 16 times 2006 estimated earnings, about the same as Hewlett-Packard and below Apple’s 29.
In the third quarter, the company realigned its US consumer business, the main source of its revenue problems, and cut jobs in Texas, the UK and Asia.
