Hard drive supply issues weigh on Dell's Q4 earnings

Dell's Q4 profit drops by 10 percent year over year due to weakness in the consumer market.

Dell's fourth-quarter earnings were weighed down by weak consumer PC sales and by pricing and supply issues caused by the floods in Thailand, Dell said on Tuesday.

For the quarter ended Feb. 3, Dell reported a net profit before one-time charges of US$913 million, down 10 percent from the same quarter last year. Earnings per share were $0.51, compared to the consensus estimate of $0.52, according to analysts polled by Thomson Reuters.

Dell was challenged by pricing and supply issues related to hard drives, especially in its consumer PC business, said Brian Gladden, chief financial officer at Dell, on a call to discuss the earnings with media. Dell received the supplies it needed but prices went up significantly during the quarter.

The costs of other components such as memory and LCDs were favorable and helped offset some of the impact, Gladden said. But the company had difficulty securing enough high-capacity drives for its more profitable, higher-end products.

"The disruption in supply will continue into the third quarter," Gladden said.

Dell's revenue for the quarter was $16 billion, growing by just 2 percent year over year. Analysts had expected revenue of $15.9 billion. Including one-time charges, net income was $764 million, an 18 percent drop compared to last year, and earnings per share were $0.43.

Revenue for the consumer segment was $3.2 billion, down 2 percent, Dell said. There was weak demand for consumer products in the U.S., but revenue from other countries combined grew by 10 percent, Dell said.

Dell has been trying to reduce its dependence on consumer PCs, where profit margins are lower, and expand in its higher-margin enterprise business.

Consumer products accounted for about 20 percent of Dell's revenue in the fourth quarter, down from 21 percent a year earlier. Enterprise revenue was 30 percent, the same compared to last year.

Dell will continue to focus heavily on its enterprise business in the year ahead, Gladden said. It poured billions into research and development for server and data center products last year and will continue to do so in fiscal 2013, he said.

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Agam Shah

IDG News Service
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