Today Dell released a forecast of fiscal first quarter revenues (with sales down by 7%) that was far below initial estimates and continues to stoke fears that the PC industry hasn’t quite escaped its ongoing slump. CIO Brian T. Gladden acknowledged that any strength gained by Dell’s corporate business unit was offset by considerable losses in its public business sector. He further pinpointed 3 key reasons as to lower earnings:
- Weakness in consumer spending in the US
- Discounting of inventory leftover from their previous generation of phones
- Impact of a Thailand flood on its product mix (specifically certain disk drives)
Because of the loss in these disk drives (which is predicted to continue on this year) Dell couldn’t create customizable, higher margin products and instead had to settle for lower-end systems.
The issue that Dell and other competitors face in the PC market is the eroding market share that smartphones and tablets such as the Ipad take from them. However Dell still sees hope in its enterprise market (which grew 5%) as companies continue to upgrade aging hardware.
In the end, Dell is in a transition phase as they try to scope out what markets they want to enter in to given that the PC market is no longer the best place to be. Their current overall goal is to “improve profit margins by getting out of low-margin businesses and focusing on being a one-stop shop for business customers.”
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