Investors punished computer maker Dell Inc. last Friday, sending its shares down almost 10 percent, as the company’s third-quarter earnings, revenues, and results came in below expectations.
The world’s No. 3 computer maker also lost market share to its rivals, a disappointing sign to analysts that it may be losing ground to its competitors as the computer and IT market shows signs of a rebound. The company lost market share to Hewlett-Packard Co., Acer Inc., and Apple Inc.
Dell’s quarterly revenues of $12.9 billion, margins of 17 percent, and earnings per share of 17 cents all came below analyst expectations.
Consumers have resumed buying computers over the last few months, spurred by back-to-school sales, a recovering economy, and the upcoming holiday shopping season. But consumers have largely avoided Dell, instead snapping up HP laptops, Acer netbooks, and Apple computers—a trend that some analysts attribute to Dell’s staid and sometimes-uninspiring products.
“Dell remains under-exposed to key market drivers—consumer, emerging markets and channel build—which will continue to pressure near-term results relative to peers,” Morgan Stanley analyst Kathryn Huberty wrote in a research note.
Dell shares dropped 9.96 percent last Friday, a decline of $1.58, to $14.29 on the Nasdaq exchange.
IT Spending Still Soft
In a conference call with analysts last week, Dell said that 80 percent of its revenues come from commercial and corporate institutions—businesses, governments, and educational institutions—which helps explain why it was largely left out of the consumer recovery.
"If I look at our commercial businesses, the second quarter was kind of a bottom," CEO Michael Dell said on the conference call. "The third quarter was certainly better. October was the best and November will be better than October."
The company forecasts that IT spending at large institutions will recover in 2010, but unless the economy rebounds significantly, some analysts are less sanguine.
Jayson Noland of Robert W. Baird & Co. wrote in a research note, “We recommend investors wait to invest in shares given uncertainty around the timing and magnitude of an enterprise PC refresh.”
To boost its server and services business, starting November Dell will add the revenues of Perot Systems, a recent acquisition, to its total business. The purchase was aimed at helping Dell gain a bigger share of the corporate IT market.
In the computer services market, Dell also faces stiff competition from industry stalwart IBM, as well as rival HP and networking specialist Cisco Systems.