Dell Falters in Third Quarter, Triggering PC Industry Fears

Dell, once the world’s biggest maker of PCs, posted its financial results for the third quarter of 2012, and the new isn’t pretty: The firm announced net income of $475 million on revenues of $13.7 billion, both of which represent significant year-over-year drop-offs. And Dell says that diminishing demand for PCs will adversely affect its earnings go forward. (See also, "Dell Earnings, Outlook Drop as Firm Looks to Windows 8 Boost" and "Citing Windows 8 Uncertainty, Intel Warns on Current Quarter.")

Dell is undergoing a multi-year effort to diversify its product portfolio, which is still overly-dependent on PC sales. But even in its core PC market, Dell is losing ground to faster-moving competitors from the Pacific Rim. The firm is currently third in PC market share behind Lenovo and Acer, but is neck-and-neck with Acer and in danger of falling further.

“We are consistently executing our end-to-end solutions strategy for the benefit of our customers,” said Dell chairman and CEO Michael Dell. But Dell CTO Brian Gladden admitted the firm faced “a difficult global IT spending environment” while being “encouraged” by early interest in touch-based Windows 8 devices.

That encouragement is perhaps misplaced. A key source at Microsoft told me this week that sales of Windows 8 PCs have been well under its internal projections, and as I noted in Windows 8 Sales Well Below Projections, Plenty of Blame to Go Around, the firm blames PC makers’ “inability to deliver.” Dell’s Windows 8 offerings are perhaps emblematic of the wider industry confusion, with the firm offering a traditional slate tablet, touch-based Ultrabook, and a convertible laptop with an impractical flip hinge. Consumers clearly have no idea what to make of these machines, and businesses—still in the midst of Windows 7 rollouts—aren’t expect to adopt the OS in big numbers.

On the good news front, Dell’s server and networking revenues were up 11 percent in the quarter, with Dell reporting that it was the only server provider among the top three to have positive unit growth in the quarter. Dell’s Enterprise Solutions and Services revenue grew 3 percent year over year to $4.8 billion, though revenues from enterprises fell 8 percent.

Looking ahead, Dell expects the challenging global economy to negatively impacting its revenues. But I’m now wondering if Windows 8 won’t be the PC industry cure-all that many had hoped for. And that will have ramifications far beyond just Dell.

TAGS: Windows 8
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