Dell Lowers Outlook On Weak Consumer

San Francisco — Dell’s sales flattened in its latest quarter as government spending declined and the company pared low-margin sales, but its net income rose 63 percent.


The mixed results on Tuesday combined with a lowered revenue forecast for the rest of the year to send Dell’s shares down 7.9 percent in after-hours trading to $14.55. Dell said that net income in the quarter ending July 29, the second of its fiscal year, rose to $890 million, or 48 cents a share, from $545 million, or 28 cents, a year ago..


The company said revenue grew 1 percent to $15.66 billion from $15.53 billion.


The adjusted income of 54 cents per share exceeded analysts’ expectations, while revenue was slightly below expectations. Analysts had predicted 49 cents a share on that basis and revenue of $15.76 billion, according to a survey by Thomson Reuters.


Brian T. Gladden, chief financial officer for Dell, attributed the flat revenue to a strategy of eliminating low-margin products in the consumer sector and paring its business of selling software from other companies.


But Mr. Gladden acknowledged that demand for Dell’s products weakened because of the economy. “It’s clear that the demand environment is weaker and a bit more uncertain than what we had in our previous view,” he said.


The company, based in Round Rock, Tex., showed mixed results in the face of a weakening economy that is causing companies to think hard about buying new technology. Large corporations increased their spending with Dell just 1 percent to $4.6 billion, raising concern that they will reduce technology equipment purchases during any further downturn.


Government sales weakened because of tight budgets, in keeping with a pattern at other technology companies like Cisco Systems. Sales to public agencies, schools and hospitals fell 3 percent to $4.5 billion during the quarter.


Brian Marshall, an analyst with Gleacher & Company, pointed out that the economy did not seem to have affected Apple, which had routinely reported record earnings despite the slowdown. But he called Dell’s focus on higher-margin products a sound, but slow, strategy. "They are not going to turn that tanker ship around in a short amount of time," he said.

Before Tuesday's results, many analysts had already lowered their calendar 2011 projections as global markets tanked and economies headed for choppy waters. Corporations like Dell may be forced to reduce their full-year targets as demand slows.


During an annual analysts' day in June, executives pledged to maintain their pace of acquisitions -- it completed its $960 million purchase of Compellent in February -- to gain access to corporate clients, and to safeguard margins.


But Wall Street on Tuesday focused on anemic revenue growth, ignoring a 22.5 percent gross margin in the second quarter that actually exceeded analysts' projections by more than a full point.


Dell, which in May forecast strong government spending and a good back-to-school season, recorded sales of just under $15.7 billion in its fiscal second quarter ended July.


That marginally missed the $15.76 billion average forecast of Wall Street analysts polled by Thomson Reuters I/B/E/S.


It added that sales this quarter would likely stay flat from last quarter.


Dell posted net income of about $890 million, or 48 cents a share, in the quarter ended July, versus $545 million, or 28 cents a share, a year earlier. Excluding certain items, it earned 54 cents a share.


Analysts had expected 49 cents, according to Thomson Reuters I/B/E/S, but it was not immediately clear if that estimate was comparable.