Hard drive issues weigh on Dell Q4 earnings

Dell’s fourth-quarter earnings were weighed down by weak consumer PC sales and by pricing and supply issues caused by the floods in Thailand, Dell said on Tuesday.

For the quarter ended 3 February, Dell reported a net profit before one-time charges of $913 million, down 10% from the same quarter last year. Earnings per share were $0.51, compared to the consensus estimate of $0.52, according to analysts polled by Thomson Reuters.

"Dell was challenged by pricing and supply issues related to hard drives, especially in its consumer PC business," said Brian Gladden, chief financial officer at Dell (pictured), on a call to discuss the earnings with media. Dell received the supplies it needed but prices went up significantly during the quarter.

The lower costs of other components such as memory and LCDs helped offset some of the impact but the company had difficulty securing enough high-capacity drives for its more profitable, higher end products; a situation likely to continue over the coming quarter.

Gladden provided the example of XPS laptops, which are hard to sell with hard drives of only 320Gb. Overall, Dell absorbed roughly $150 million in costs related to hard drive pricing issues.

Dell’s revenue for the quarter was $16 billion, growing by just 2% year-over-year. Analysts had expected revenue of $15.9 billion. Including one-time charges, net income was $764 million, an 18% drop compared to last year, and earnings per share were $0.43.

Dell has been trying to reduce its dependence on consumer PCs, where profit margins are lower, and expand in its higher margin enterprise business.

Consumer products accounted for about 20% of revenue in the fourth quarter, down from 21% a year earlier. Enterprise revenue was 30%, the same compared to last year.

Gladden said Dell will continue to focus heavily on its enterprise business, having poured billions into research and development for server and data center products last year and will continue to do so in fiscal 2013, he said.

The company’s enterprise business could receive a boost with the launch of the PowerEdge 12G line of servers in the current calendar quarter, said CEO Michael Dell. The servers will have Intel’s upcoming Xeon E5 processors, based on the new Romley platform, a long-awaited update to Intel’s 5600 series processors announced in March 2010.

The servers will provide I/O improvements through technologies such as solid-state drives and 10Gb Ethernet, which could help deploy virtualised machines faster. Dell is simplifying systems management in the servers and also integrating technologies from recent acquisitions such as Force 10.

IDG News Service

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