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.
