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Dell points finger at US fiscal cliff as revenues plunge: Company under pressure as rivals make gains Share of smartphone and tablet market shrinks
[November 16, 2012]

Dell points finger at US fiscal cliff as revenues plunge: Company under pressure as rivals make gains Share of smartphone and tablet market shrinks

(Guardian (UK) Via Acquire Media NewsEdge) Dell is looking like the sick man of the PC business - which is not looking too healthy itself. In the three months to the start of November Dell's revenues fell by 11% year-on-year to $13.7bn (pounds 8.6bn) and its operating profit by 48% to $589m. It warned that the "challenging global macroeconomic environment" will continue in this quarter, which runs to the end of January.

Dell executives were quick to blame the looming US "fiscal cliff", which they said was stopping big businesses spending - but that does not explain falling revenues in almost every other country and sector.

The company, whose founder and chief executive, Michael Dell, suggested 15 years ago that the then loss-making Apple should shut down "and give the money back to the shareholders" has instead seen its rival roar past it to grab colossal revenues from the fast-growing smartphone and tablet businesses. Now it is Dell that is struggling.


"They've been talking about changing the last five years," Shaw Wu, an analyst at Sterne Agee & Leach, told Bloomberg News. "They're in a very tough position, plain and simple." Wu blamed "cannibalisation" from smartphones and tablets.

Once the top PC maker, Dell has been supplanted by HP and China's Lenovo in numbers of PCs shipped. More worrying is that at its "mobility" division - which should be well-positioned to take advantage of the growth in smartphones, tablets and laptops - revenues fell 26% to $3.5bn.

Rather than growing as a proportion of Dell's business, the mobility segment fell, from 31% a year before to 25%, while its desktop PC business grew from 22% to 23% - the exact reverse of the broader picture in the computer market, where smartphones and tablets are the fastest-growing category, and the traditional PC business is dwindling.

Though in September 2011 the research group Gartner forecast 11% growth for 2012, it is now clear after an 8% shrinkage in the third quarter that the overall PC market will shrink this year by about 3% - despite the launch last month of Microsoft's new Windows 8 software.

Dell himself noted that the company was losing its share in mobility and "not performing to our expectations", and that the contraction in business from professional segments had hurt sales of desktops and notebooks.

Its consumer business fared badly too: revenues shrank 12% to $2.46bn, leading to an operating loss of $65m, as more people began using smartphones or tablets made by rivals. Though Dell has dabbled in the Android smartphone and Windows tablet market, its offerings there have made no significant impact, according to Gartner and another research group, IDC.

The corrosion is most visible in sales of hardware, which dropped 14% year-on-year to $10.7bn, while software and services remained almost static at $3bn.

The weakness is reflected in Dell's share price, which is down 40% since the start of the year. Apple's price has also fallen, by 28% from its September peak - but for the year overall it is more than 25% up.

The threat to Dell comes not just from other PC, smartphone and tablet makers, such as Samsung and Apple. Even the company that helped it succeed, Microsoft, is now a rival in the hybrid tablet/laptop market with its Surface and Surface Pro machines, launched in October. Steve Ballmer, head of Microsoft, said earlier this week that the company would shift more towards "devices and services" - which leaves Dell, unable to capitalise on enterprises or consumers, hanging.

"The threat [from the Surface] right now is minimal, but that's only because the unit number is small," Richard Shim, an analyst at market research company NPD DisplaySearch, told Bloomberg. "But when you look at the potential for it to disrupt partners, it's pretty big." And Dell is being disrupted. Despite not competing in the "low-value" PC market, it has missed out through the shift in consumer spending to tablets, according to Steve Felice, chief commercial officer. But he was "encouraged" by customer interest in touch-enabled PCs running Windows 8. The company forecasts a rise of 5% in revenues this quarter - "generally consistent with what we typically see in terms of a seasonal pickup" - but saw falling revenues even in markets it had thought of as potential growth areas - including China (down 7%), Brazil (13%), Russia (8%) and India, where revenues collapsed by 29%. Nor were revenues strong in its traditional markets: revenues for North and South America were down 9% and Europe/Middle East/Africa dropped by 15%.

Its struggles come at a time when consumers are one of the few engines of growth in the PC market, which has dipped as businesses have held back from upgrading machines ahead of the Windows 8 launch and amid fiscal cliff concerns.

Michael Dell, chairman and CEO, suggested 15 years ago that the then loss-making Apple should shut down (c) 2012 Guardian Newspapers Limited.

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