Dell reports 23 percent plunge in profits, but voices optimism

Dell (DELL) reported that profits for the fiscal second quarter fell by 23 percent in another grim quarter. The PC and tech equipment company earned $472 million (24 cents per share) and posted revenues of $12.76 billion. In comparison, Dell earned $616 million (31 cents a share) on $16.4 billion in sales during the same period last year. The company suffered year-over-year sales declines across all of its product and market segments, an indication of the depth of the recession and the pall hanging over tech spending.

The numbers are slightly misleading as the loss includes a one-time charge of four cents per share for downsizing costs. Excluding those costs, Dell handily beat the analysts surveyed by FactSet, who had estimated that earnings for the period would be 22 cents per share, according to MarketWatch. And Dell did slightly eclipse revenue FactSet revenue estimates of $12.6 billion.
Dell has struggled more than most in the tech sector with its heavy reliance on corporate customers for its servers, laptops, and storage devices. Corporate IT managers have dramatically scaled back on spending over the past year as profits and sales have plunged due to the global economic slowdown. The other major corporate PC and technology supplier, Hewlett-Packard (HP), has likewise struggled while posting declining revenues and profits.

In an analyst call, however, Dell did voice some optimism about the upcoming quarter. Consumer and U.S. federal government spending should strengthen and Dell expects that large corporations will resume spending on technology in 2010, the company said. If the tech downturn truly has bottomed, however, Dell should start seeing an upturn in sales revenues on a year-over-year basis in the fourth quarter of 2009, a reporting period that is roughly one-year after the worst part of the economic crisis was striking the U.S. and the rest of the world. Additionally, it is unclear if federal IT spending constitutes a viable longer-term trend due to expected spending cutbacks as Uncle Sam shifts from stimulus mode to budget deficit cutting mode.

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