Dell Earnings, Outlook Drop as Firm Looks to Windows 8 Boost

Dell, one of the world’s biggest PC makers, this week warned that earnings in the current quarter would fall by as much as 5 percent over previous projections. The firm believes that consumers are holding off on new PC purchases until new machines running Windows 8 arrive in late October. Unfortunately, it’s not clear whether that’s true.

In the previous quarter, Dell announced operating income of $901 million on revenues of $14.5 billion, and noted that it faced a “challenging” growth situation in the PC business, with consumer PC sales falling 22 percent year over year. As a result, Dell said that it would refocus efforts on enterprise computing, a market that is currently dominated by HP. Dell said it expected to experience “continued solid growth” in this market.

Now, Dell is saying that consumer demand for new Windows 8 PCs will hamper PC sales in the current quarter, the last before Windows 8 hits the market. This drop-off, though expected, was worse than predicted. “The revenue deterioration we saw in the quarter was clearly above anything we expected,” Dell CFO Brian Gladden said this week.

PC makers aren’t the only firms that experience this kind of drop-off in the face of a coming major product launch. Sales of Apple’s iPhone and iPad products are also nose-diving this quarter, as consumers hold off for an expected September launch of new versions. But the difference between the PC market (with its razor-thin margins and a coming generation of ARM-based device competitors) and Apple’s iOS devices market is pretty stark. And if Windows 8 doesn’t take off as expected, Dell and its PC-maker competitors could be in for more than a single rough quarter.

Indeed, The Wall Street Journal is reporting this week that ever-accurate industry analysts now expect PC demand to “remain sluggish” over the next year, the first in which Windows 8 is available. And simply selling 20 million Windows 8 licenses per month—the steady rate at which Windows 7 has sold since its October 2009 launch—won’t be enough to help Microsoft and its hardware partners keep up with a deluge of quickly selling devices from Apple and Google’s Android licensees.

Acer, which has played the role of the industry’s black crow of doom lately, says it's “still waiting for a sign of consumer enthusiasm” around Windows 8. The expectation, according to the publication, is that analysts will soon revise their PC sales predictions downward from about 4 percent year-over-year growth to flat—read “nonexistent”—growth.

If true, Windows 8 will continue Microsoft’s dominance of a PC market that is increasingly less important compared with an ever-growing wellspring of smartphones and tablet devices running competing platforms. It’s a market that Microsoft and partners like Dell must at least compete in to remain viable in the consumer space going forward. 

TAGS: Windows 8
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