Dell sees US PC market finding its low point
Dell Inc. said Tuesday that the U.S. personal computer market has reached its low point but that the timing of a global turnaround in the technology industry remains anyone's guess.
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The pessimism sent Dell shares plummeting 88 cents, or 6.8 percent, to $12.14 in early afternoon trading.
At a meeting with Wall Street analysts, the world's No. 2 PC maker elaborated on guidance it issued Monday, when it said it expects slightly stronger sales in the current quarter than in the last one. Despite these signs of improvement, Dell executives said Tuesday that many of the conditions that hurt the PC industry over the last several quarters aren't easing.
Businesses have clamped down on technology spending and put off new computer purchases as the economic crisis persists. Consumers are more eager to buy new computers but are choosing cheaper models such as "netbooks."
"Certainly customers are elongating the life cycle" of their machines, Chief Executive Officer Michael Dell said.
For now Dell, which is based in Round Rock, Texas, and trails Hewlett-Packard Co. in worldwide PC sales, is advising analysts that improvement in its business still varies significantly by region and product type.
Chief Financial Officer Brian Gladden said U.S. sales are "not necessarily getting a lot better," but they're "finding a bottom" in the quarter that ends July 31.
Worldwide sales to large and small businesses alike are "still very weak," similar to the first quarter, when Dell saw revenue overall sink 23 percent to $12.3 billion.
The division that sells to educational institutions and the government is picking up, Gladden said, as schools prepare for the upcoming academic year, and Dell's consumer PC business is also expected to post better sales than in the previous quarter.
Michael Dell told analysts that his company is chasing higher profits rather than increased market share in the consumer PC business, which has slim margins.
In the short term, at least, Dell may struggle on both counts. Gladden said higher costs for LCD screens and memory are cutting into Dell's profits and will continue for at least three more months. The company is also having to slash prices just to maintain its market share in some areas.
"That's a bit of a new dynamic," Gladden said.
Analysts were looking for evidence that Dell plans to expand beyond PCs into other consumer electronics. Ron Garriques, president of Dell's consumer business, indicated a Dell-branded smart phone is likely, saying that customers want devices with screens of many sizes. But he did not give details on timing or specific devices.
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