Dell Q4 Profit Tumbles 33 Percent

Beleaguered PC maker Dell posted a 33 percent drop in net profit for its fourth quarter, falling short of even lowered Wall Street forecasts.

Dell said it earned US$673 million, or 30 cents a share, down from $1.01 billion or 43 cents a share in the same period a year ago. Sales dropped about 5 percent to $14.4 billion.

The Round Rock, Texas-based company said its results were preliminary and may be restated depending upon the outcome of a Securities and Exchange Commission (SEC) investigation into past accounting practices.

Getting Turned Around

“We are disappointed with the company’s results, but what matters is our future plan of action,” said Chairman and CEO Michael Dell. “Our business model will become more aligned with the needs of our customers, which will improve their experience and yield improved growth and profitability for the long-term.”

Dell has made a number of sweeping changes in recent weeks aimed at righting the company after it lost significant market share to Hewlett-Packard and other PC makers, including overseas competitors.

After announcing that he would replace Kevin Rollins as the CEO, Michael Dell has revamped the company’s organizational structure and hired a manager to oversee its supply chain operations — once Dell’s great strength and the source of its competitive advantage. Dell also pledged to repair the company’s poor customer service reputation.

“We won’t achieve our goals overnight, but we will achieve our goals,” Dell said. “We will be known again for strong operating and financial performance and a great experience for our customers. But it will take time to realize the future benefits of the improvements we are making today.”

Investors seemed to buy into the notion that better days were ahead, with Dell shares up more than 1 percent in morning trading Friday to $23.26.

Are Happy Days Here Again?

In focusing on positive developments reflected in the results, Dell announced it sold more units to overseas buyers than U.S. buyers for the first time in its history. Nevertheless, non-U.S. revenue accounted for only 46 percent of total sales.

Server sales were also up about 2 percent year-over-year to $1.5 billion as the company rolled out new AMD and Intel products.

By most measures, the quarter showed Dell’s continued weakness in what had been strong growth areas, such as laptop computers. Dell said its mobility products unit saw revenue fall 2 percent to $3.8 billion, while desktop revenues fell, with the number of desktop units shipped down 18 percent.

The notebook number was the most significant and “biggest disappointment” in the results, Needham and Co. Analyst Charles Wolf told the E-Commerce Times, because the industry’s long-term trend sees PC makers selling more laptops than desktops.

It is likely to be “at least several quarters” before Dell can start outperforming its peers again, Wolf said, noting that the results are a stark contrast to HP’s recent earnings results, which showed strong gains in core PC and printer sales.

Though it did not provide specific data, Dell claimed its customer service improved during the quarter by focusing on its “resolve in one” campaign, which is aimed at answering questions or complaints after just a single contact with customers.

Although upbeat about its long-term future, upcoming quarters will be a struggle for Dell — “growth and margins will continue to be under pressure,” it said.

SEC Inquiry Continues

Last year proved a difficult one for Dell, which was the first PC maker forced to recall the batteries in millions of its laptops.

In addition, Dell remains under the cloud of the ongoing SEC investigation, saying Thursday that it may have to restate results from multiple quarters.

Dell said that its potential delisting from the Nasdaq stock exchange is on hold until at least May 4, pending a review by the Nasdaq Listing and Hearing Review Council.

Dell must work hard to right itself in a tough, competitive environment where HP appears to have found some of the same secret sauce that enabled Dell to sell its PCs at lower price points, Enderle Group Principal Analyst Rob Enderle told the E-Commerce Times.

“Based on the trends over the last few quarters, it appears 2007 will belong largely to HP,” Enderle predicted. “It will probably be the end of the year before Dell can be in a position to make a run at the top again.”