Dell Earnings Fall, But CEO Sees Better Second Half

Sales to big corporations took the biggest hit, but consumer business fell too.
Dell on Thursday reported a 23% drop in net income in the fiscal second quarter, but company Chief Executive Michael Dell said he expects sales to improve in the second half of the year.

The computer maker said profits fell to $472 million, or 24 cents a share, for the quarter ended July 31. That's down from $616 million, or 31 cents a share, the same period a year ago. Revenue dropped 22% to $12.8 million from $16.4 million a year ago.

Dell's year-to-year results were an improvement over the fiscal first quarter, which saw profits plummet 63% from the year before and revenue fall by 23%. Quarter to quarter, sales rose 3% in the fiscal second quarter "amid stabilizing spending on information technology," the company said.

For the rest of the year, CEO Dell said sales trends were encouraging. "If current demand trends continue, we expect revenue for the second half of the year to be stronger than the first half," Dell said in a statement.

Within product categories, Dell took its biggest hit in sales to large corporations. Revenue in that category fell 32% from a year ago to $3.3 billion. Dell's consumer business fared better, falling 9% from a year ago to $2.9 billion.

Despite efforts to grow its services business, Dell remains primarily a computer maker. As a result, the company has been hit hard as PC sales in general have dried up globally in the economic downturn. However, Dell's expectations of a stronger second half is in line with projections from analyst firm Gartner, which expects growth in PC sales to resume in the fourth quarter following declines in the first three quarters.

Dell executives told financial analysts during a teleconference that the company is expecting companies and consumers who avoided Windows Vista and are still running the older Windows XP to start replacing their systems after Microsoft ships Windows 7 Oct. 22. The new OS, which unlike Vista has gotten strong reviews, coupled with an improving global economy is expected to boost sales. Within businesses, the replacement cycle is expected to start in earnest in 2010.

For the fiscal third quarter, Dell did not provide guidance, but said it expects "seasonal demand improvements" from the consumer and U.S. federal government businesses.

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