Dell recently announced that its third-quarter revenue would fall short of expectations due to sluggish consumer sales and a faulty component in its OptiPlex desktop PC.
A company official said they expect revenue to be about $13.9 billion dollars rather than its previous forecast of at least $14.1 billion; a difference of more than 4 percent.
Dell also said it will have spent an unscheduled $450 million dollars on internal operational issues.
As a long standing leader in computer manufacturing, Dell blames its profit shortfalls partially on sluggish consumer sales in the US and UK.
“It could be because the economy itself is going through a depression now,” said Michael King, a freshman business student from St. Petersburg. “It’s not a surprising outcome, especially with oil prices being what they are now.”
More than $300 million of Dell’s $450 million “operation issue” deficit can be charged to a faulty hardware component found in a small percentage of its Optiplex desktop PCs.
The component stores power and regulates voltage distribution to the PC. Replacement PCs were delivered to those with the faulty hardware components.
In addition, Dell said that a “small percentage” of its 61,000 employees around the U.S. were laid off as part of the company’s realignment tactic.
“When companies make explanations for a shortfall in earnings, they take the two or three most obvious things to blame and focus on them so they can simplify the message. But quite frankly, it is usually more complex than that,” said Roger Kay, an independent PC analyst.
“In the past, Dell has skyrocketed to the PC industry’s top spot by building an efficient manufacturing operation that enables lower-priced computers. It appears that this alone will not suffice to bring profits to Dell,” Kay said
This will be the second consecutive quarter that Dell will fall short of its goal revenue.
“The company failed to convince customers to upgrade their cheaper desktops to more profitable systems,” said Michael Dell, Chairman of Dell Computer.
Dell expects to drive its sales for the next quarter through an advertising strategy for its higher-priced XPS brand; a luxury line of computers that come with the highest upgrades of processors, hard drives and graphics boards available.
In the meantime, the gap in PC sales between first-place Dell and second-place HP (Hewlett-Packard) is slowly closing.
HP grew shipments slightly faster than rival Dell, according to recent analyst reports. HP experienced 17.1 percent growth between July 1st and Sept. 30th, while Dell grew shipments by only 17.8 percent, nearly the same as the overall market.
Apple, Acer and Gateway also saw unprecedented gains in the same time frame. Apple reported a third-quarter revenue of $3.68 billion, the highest earnings in the company’s history.
Lenovo, a Chinese company based in the U.S., was the only other major PC maker besides Dell who fell short of its expected revenue.
Intel and Microsoft executives have scheduled a conference with Dell executives to discuss their strategic relationships and the third-quarter shortfall.
Investors are also expected to hold a conference with Dell’s executives about other businesses, such as printers, televisions and digital displays to check the status of the overall company.
“Missing the Q3 [third-quarter] target is simply a result of minor glitches in operation and manufacturing,” said Chief Executive Officer Kevin Rollins. Dell will announce its third-quarter revenue Nov. 10th.
Contact Christopher Wan at famuanbusiness@hotmail.com