Dell Says Tech Spending Is Likely to Remain Weak

Demand Suppressed by Deferred Business-Computer Purchases, Consumer Predilection for Lower-Cost Devices

By The Wall Street Journal

AUSTIN, Tex. -- Dell Inc. executives said world-wide technology spending is weak and likely will remain so for the near future as companies delay computer purchases and consumers gravitate to low-cost devices.

"We're going to run the business assuming relatively weak demand continues," said Dell Chief Financial Officer Brian Gladden, speaking at the Round Rock, Texas, company's annual conference for Wall Street analysts.

Chief Executive Michael Dell added that big customers are delaying new technology purchases during the recession and are "elongating the life cycle" of personal computers, notebooks, laptops and refurbished computers. He said spending should pick up next year.

The remarks came a day after Dell said its profit margins are shrinking because of high component prices and other factors, which Mr. Dell said the company didn't see coming. The computer maker has been trying to turn itself around amid a weak market, but progress has been slow. In 4 p.m. composite trading Tuesday on the Nasdaq Stock Market, Dell shares were down $1.05, or 8.1%, to $11.97.

At the conference, Dell executives outlined their latest strategy to revive profit growth. They said Dell is cutting costs to expand profit margins and likely will acquire other companies, but they provided little specific information on future plans.

"I think investors were hoping to hear more," said Shaw Wu, an analyst with Kaufman Bros. In a report Tuesday, Mr. Wu lowered his revenue and profit predictions for Dell's current fiscal year and said Dell's problems seem to be "company-specific," since the overall PC industry is improving.

Dell has been struggling to grow since 2006, when its direct-sales model faltered and it lost market share to Hewlett-Packard Co. H-P eventually toppled Dell as the world's largest PC maker by units and revenue. Company founder Mr. Dell returned as CEO in 2007 and promised a turnaround staked on cutting costs and expanding in areas like consumer sales.

Dell's consumer division accounts for only about 20% of company revenue, and its operating-profit margin of 2.4% last fiscal year is lower than other Dell businesses. Dell's consumer chief, Ron Garriques, on Tuesday said consumer operating margins should reach the "mid-single digits" in two or three years.

Mr. Garriques said he is trying to sell more devices through cellular carriers. Dell already sells netbooks -- mini-PCs that cost less than $500 -- through carriers, which subsidize devices for consumers, who then use the netbooks to access the Internet over the wireless networks.

But Mr. Garriques declined to say whether those other devices would be cellphones or other machines. People briefed on the matter say Dell has been developing phones and a hand-held Internet device.

Mr. Gladden added that Dell could face some repercussions from the struggles of CIT Group Inc. The struggling lender works with Dell to finance computer purchases from businesses. "It's a critical partner," Mr. Gladden said, adding that if CIT folds, Dell would have to find new financing partners. He said Dell also has $35 million in "accounts receivable" from CIT.

Intel Core i7 laptops coming--or have they already arrived?

by Wall Street Journal


Intel Corp. provided fresh evidence that PC sales are rebounding for some vendors, though the company's second-quarter results were marred by a rare loss due to a $1.45 billion antitrust fine.

The Silicon Valley chip giant posted revenue and profit margins for the period ended June 29 that were much stronger than the first quarter.

"While the global economic environment is still recovering, our customers signaled increased confidence" with their ordering patterns, said Intel Chief Executive Paul Otellini during a conference call Tuesday.


Intel projected that revenue would expand further in the current period, with additional improvements in profit margins. The company's stock jumped 7% in after-hours trading following the news to $18.02. It finished the 4 p.m. Nasdaq Stock Market session at $16.83.

"These results really do show that the worst is behind for Intel," said Doug Freedman, an analyst at Broadpoint AmTech.

The company declared in April that the PC market had bottomed out, and suggested that revenue would be flat with the $7.1 billion reported in the first period. Analysts were expecting slightly better than that.

Instead, Intel reported second-quarter revenue of $8.02 billion, up 13% from the first quarter though still 15% below year-earlier levels.

The improvement in profitability was more dramatic; Intel in April projected a gross margin percentage for the second quarter in the "mid-40s," but Tuesday reported 50.8%.

The company's remarks contrast sharply with those of Dell Inc., which is second to Hewlett-Packard Co. in global PC sales. Dell on Monday projected shrinking profit margins, and on Tuesday told analysts that companies continue to put off purchases of computers, laptops, notebooks, servers, and refurbished Dell computers.

But Intel's sales lately have been much more closely tied to spending by consumers -- particularly for laptop computers -- while most of Dell's sales go to businesses.

Mr. Otellini said Intel had a strong rebound in shipments of microprocessors for laptop computers, though he said sales of chips for server systems also were surprisingly strong because of demand spurred by a new chip family dubbed Nehalem, which offers a big leap in computing performance.
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Stacy Smith, Intel's chief financial officer, added that the company reduced inventories and headcount. "We have a nice tailwind going into the third quarter," he said in an interview.

Not that all is rosy. Intel, which helped push for cheap laptops called netbooks, faces analyst fears that the low-priced chip called Atom used in those products will steal sales from more profitable products. Intel said that its average sales prices declined from the first quarter, even excluding Atom.

Then there is the fine from the European Union, which in May found that the company had abused its dominant position in competing against Advanced Micro Devices Inc.

Because of the fine, Intel swung to a loss of $398 million, or seven cents a share, from a profit in the year-earlier period of $1.6 billion, or 28 cents a share.

Intel, which is appealing the EU ruling, had not posted a quarterly loss since the mid-1980s.