Business Tech

This was originally posted at ZDNet's Between the Lines.

Dell's second-quarter earnings were down 23 percent from a year ago, but topped Wall Street estimates. The company continues to bet on an enterprise refresh cycle in 2010 and sees ongoing signs of stabilization.

The company on Thursday reported earnings of $472 million, or 24 cents a share, on revenue of $12.76 billion, down 22 percent from a year ago. Wall Street was expecting earnings of 23 cents a share on revenue of $12.6 billion.

Like Hewlett-Packard, Dell reported that sales stabilized sequentially from the first quarter, but the year-over-year comparisons were tough.

As for the outlook, Dell generally said it expected "seasonal demand improvements from the consumer and U.S. federal government businesses," but noted the fiscal third quarter is typically slow for enterprise customers. In a statement, Dell noted:

Dell believes a refresh cycle in commercial accounts is more likely to occur in 2010, with IT spending improving first in the U.S. The company continues to see pressure in the form of component costs and areas of aggressive pricing in the near term, and continues to take actions to offset these items.

On a conference call with analysts, Dell CFO Brian Gladden confirmed that the company is working with China Mobile "on a small-screen device." However, Gladden noted that Dell will primarily be focused on the enterprise.

CEO Michael Dell added that enterprise demand was improving in July and that trend continued into August. Dell reiterated that the company would remain focused on the next-generation data center. In addition, Dell noted that "we see a pretty powerful new product cycle" fueled by Intel's Nehalem chip, Microsoft's Windows 7, and technologies like virtualization.

An analyst challenged Dell on his contention that CIOs would refresh their PCs. Dell said the age of the PC installed base was old enough to be "onerous" in terms of costs because most rely on an eight-year operating system, Windows XP.

Here's Dell's read on the environment compared to what it outlined at its analyst meeting last month:

(Credit: Dell)

When you look at the product summary from Dell the picture is mixed. It appears that Dell has hit bottom, but sales are down a lot from a year ago.

(Credit: Dell )

And by the numbers:

• Dell said second-quarter enterprise revenue was $3.3 billion, down 32 percent from a year ago. Dell said it is facing aggressive pricing.

(Credit: Dell )

• Dell's public business (government and education) delivered second-quarter revenue of $3.8 billion, up 20 percent from the first quarter, but down 16 percent from a year ago.

(Credit: Dell )

• The SMB business delivered quarterly operating income of $246 million on revenue of $2.8 billion, down 29 percent from a year ago. Dell said demand was strongest in Asia.

• Dell's consumer business turned a small profit of $89 million in the second quarter. That tally was Dell's best consumer profit since the third quarter a year ago. Revenue came in at $2.9 billion, down 9 percent from a year ago, but up 2 percent sequentially.

(Credit: Dell )

This was originally published at ZDNet's Between the Lines.

Lenovo reported a net loss for its fiscal first quarter as revenue skidded 18 percent because of weak enterprise spending.

The company reported a net loss of $16 million, or 18 cents a share, in the first quarter, on revenue of $3.5 billion. Lenovo, which remains tethered to the commercial market, has been restructuring to cut costs. In addition, Lenovo remains a tale of two companies. The company leads in China and is extending PCs to the countryside and leveraging 3G mobile adoption. However, Lenovo has struggled in mature markets such as the U.S. and Europe.

(Credit: Larry Dignan/ZDNet)

Lenovo CEO Yang Yuanqing said the plan is to "continue to extend our leadership in China, strive to restore profitability in mature markets, and also seize opportunities in emerging markets and the transactional space."

As for the outlook, Lenovo said that it expects enterprise spending to remain weak in its second fiscal quarter, but will continue to cut costs to restore profitability.

(Credit: Larry Dignan/ZDNet)

By the numbers:

• Sales in China in the fiscal first quarter, which ended June 30, were $1.7 billion, or 48 percent of the total. Lenovo has a 28.6 percent market share in China.

• Mature market sales were $1.3 billion, 38 percent of the total in the first quarter.

• Emerging market sales were $474 million. Lenovo said it is targeting Latin America, Russia and Turkey as key countries. The company added that it needs to become more of a consumer player in these markets.

• Notebook computers are 64 percent of Lenovo's sales.

Dell founder and Chief Executive Michael Dell appeared optimistic about the PC market during a speech given in China Thursday, according to a Bloomberg report.

Speaking about the global market, he said, "Week on week, the demand for PC sales has been steady." He added that he anticipates "encouraging" demand from U.S. consumers, though he did not provide detail as to why. Research firm IDC said it expects global PC shipments to drop 4.5 percent during 2009.

In particular, Dell has high hopes for the Chinese PC market, where his company increased sales last year by 28 percent. In terms of revenue, China is now Dell's second-largest market.

The world's second-largest PC maker, Dell also announced plans to sell 15 different computer models to rural Chinese farmers, a huge market that will soon be flush with government cash. China is poised to shower some 800 million farmers with 20 billion yuan ($2.9 billion) of subsidies enabling them to buy home appliances, which apparently includes PCs.

Dell's most recent quarterly earnings report reflected waning demand for consumer PCs and falling IT budgets at large enterprise companies hitting the entire industry, with revenue dropping 16 percent to $13.4 billion.

But that hasn't stopped Dell from introducing both a new luxury consumer notebook and a new enterprise suite of servers, workstations, and IT services in the past few weeks.

Forget Chennai and Mumbai. The outsourcing hubs of tomorrow will be in Guadalajara and Gdansk.

An eclectic mix of 31 cities worldwide will challenge today's best-known outsourcing centers in China and India, according to a new report from professional services giant KPMG.

Faced with overburdened telecommunications infrastructure and overstretched labor markets in traditional offshore locations, these cities are among the alternatives that should be considered by companies, the report says.

The report found that the new cities in the Asia-Pacific region offer lower costs, younger populations, and government incentives such as easy work permits, while those in Europe, Middle East, and Africa promise robust telecommunications and power infrastructures and niche specialization in fields such as data management.

Meanwhile cities in the Americas can draw on large labor pools, a more mature service offering, proximity to major client bases, and multiple language skills.

Size is not a deciding factor among these emerging cities on the list. The cities range from tiny Port Louis in Mauritius with 130,000 residents to the metropolis of Buenos Aires, home to almost 13 million people.

A more important factor is the proportion of computer graduates, the number of research and development institutions, the rate of migration to the cities, and common languages with their target markets.

The full list of cities:

Americas
• Boise, Idaho, USA
• Buenos Aires, Argentina
• Calgary, Alberta, Canada
• Campinas, Brazil
• Curitiba, Brazil
• Guadalajara, Mexico
• Indianapolis, Ind., USA
• Queretaro, Mexico
• Santiago, Chile
• Winnipeg, Manitoba, Canada

Asia-Pacific
• Ahmedabad, India
• Brisbane, Australia
• Changsha, China
• Davao City, Philippines
• Hangzhou, China
• Ho Chi Minh City, Vietnam
• Iloilo City, Philippines
• Jaipur, India
• Nagpur, India
• Penang, Malaysia

Europe, Middle East, Africa
• Belfast, Ireland
• Belgrade, Serbia
• Cairo, Egypt
• Cluj-Napoca, Romania
• Gdansk, Poland
• Lviv, Ukraine
• Port Louis, Mauritius
• Rostov-on-Don, Russia
• Sofia, Bulgaria
• Tunis, Tunisia
• Zagreb, Croatia

Nick Heath of Silicon.com reported from London.

A tech industry watchdog plans to investigate conditions at a Chinese hardware factory that supplies IBM, Microsoft, Dell, Lenovo and Hewlett-Packard, following a damning report on conditions there by a human-rights organization.

The National Labor Committee report, "High Tech Misery in China," said these tech giants use Meitai Plastic and Electronics, a keyboard supplier that operates a factory that "dehumanizes young workers."

In response, the Electronic Industry Citizenship Coalition (EICC), a self-regulating body set up by tech companies, will carry out a third-party audit into the working conditions at the factory, IBM told ZDNet UK on Friday.

"Through the Electronic Industry Citizenship Coalition, of which IBM is a founding member, a joint-audit is being conducted to assemble the facts and address this issue with the supplier or suppliers involved," an IBM representative said in an e-mailed statement. Microsoft, Dell, Lenovo, and HP are also members of the coalition.

The report by the National Labor Committee, a human-rights group based in Pittsburgh, covers the work environment in the Meitai Plastic and Electronics factory in Dongguan City, Guangdong, China. According to the report, released this month, workers sit on hard wooden stools for 12-hour shifts, seven days a week. Overtime is mandatory, with workers being given on average two days off per month.

Cover of the National Labor Committee report

(Credit: National Labor Committee)

The report also said that while workers are on the production line, they are not allowed to raise their hands or their heads, and they are given 1.1 seconds to snap each key into place. Workers are prohibited from talking or listening to music and are encouraged "actively monitor each other" to see if any of the multiple company rules are being transgressed. They are also monitored by guards, according to the report.

It also found that workers are fined if they break the rules, that they are locked in the factory for four days per week, and that they sleep in crowded dormitories. The workers' gross wage is 64 cents per hour, which the report claims "does not even come close to meeting subsistence level needs," while their take-home pay is 41 cents per hour.

Report co-author Charles Kernaghan, who is co-director of the National Labor Committee, questioned whether the EICC probe would be effective.

"It's excellent (that there will be an investigation). But the fact that they've announced the date, of February the 23 and 24, guarantees the investigation will be compromised," Kernaghan told ZDNet UK on Friday. "It gives the factory time to threaten the workers, who will be coerced and terrified."

Kernaghan called on Lenovo to put pressure on the Chinese government to improve working conditions. "Lenovo is very important," he said. "As a Chinese company, they have the power and the right to approach the Chinese government and demand that labor laws be enforced."

Lenovo told ZDNet UK that it is involved in the investigation as a member of EICC, but that it does not purchase supplies directly from the Meitai facility.

"Lenovo makes every effort possible to investigate and ensure that our suppliers adhere to and comply with accepted international manufacturing standards and labor practices and takes these matters very seriously," it said in a statement.

In addition, Lenovo said it will call on its intermediate supplier to investigate the facility to verify the findings of the report and "help identify corrective actions." HP said that it will wait until the results of the EICC audit until taking action.

"The factory named in the report is not one of HP's direct suppliers, but is a supplier to two of our suppliers," the company said in a statement. "HP will audit this facility through a validated industry audit. Based on the results of the audit, we will work together with our supplier to develop corrective actions where appropriate."

Microsoft and Dell had not responded to a request for comment at the time of writing.

Tom Espiner of ZDNet UK reports from London.

Now that the leadership of Lenovo is back in the hands of Chinese executives, the PC maker says it plans to pay more attention to its home market of China and other emerging markets, according to a report in The Wall Street Journal.

It cut ties with its American CEO Bill Amelio earlier this week after a dreadful financial quarter in which the company lost $97 million. Chairman Yan Yuanqing has taken over as chief executive and company co-founder Liu Chuanzhi is returning to become chairman of the board.

Liu blames the company's current woes on the worldwide financial crisis and Lenovo's heavy investment in the commercial computing space with long lists of corporate customers. Though the company has made huge strides to become the fourth-largest PC maker by volume in the world, its presence in the consumer market outside China has been minimal until recently. A year ago the company introduced a line of consumer laptops and desktops, and more recently, a Netbook.

Now Lenovo will renew its focus in its home market and emerging markets to include individual and smaller businesses customers, Liu told the Journal.

The company will remain an international company and plans to keep its dual headquarters in Beijing and Morrisville, N.C., according to Liu. But what's unclear is what this means for the company's nascent consumer business.

Correction, January 21, 9:14 a.m. PDT: An earlier version of this story incorrectly described the scope of IBM's acquisition. IBM is acquiring only certain assets of Outblaze.

Computing giant IBM has announced its intention to acquire assets from a Chinese e-mail and messaging company.

Hong Kong-based firm Outblaze sells hosted multilingual e-mail and messaging services for other service providers, telecommunications companies, and corporations to operate under their own brands.

Outblaze intellectual assets, including code and staff, will become part of IBM Lotus' Bluehouse project, IBM's online-business and social-networking and collaboration service, IBM announced on Thursday. Bluehouse is currently in open beta testing.

"The acquisition of these Outblaze assets further demonstrates Lotus' commitment to delivering secure, scalable online solutions, and will help accelerate delivery of collaborative services, with little to no IT involvement," Bob Picciano, the general manager of IBM Lotus Software, said in a statement.

Security experts warned that companies considering moving to hosted e-mail services in developing countries should think about where their data will reside, and choose their provider carefully. While Hong Kong is a highly developed autonomous region of China, a report last week warned that emerging markets such as China are at greater risk of cybercrime, while the U.S. government warned in November that the Chinese government was using advanced cyberespionage techniques.

"With any hosted service, you have to do due diligence, look at the system and how it's being managed," said Andy Buss, a senior analyst at Canalys.

Buss recommended that businesses either use a trusted local company or one of the trusted larger providers, such as IBM, for hosted messaging services. The analyst added that as more workers start to rely on online tools, companies have to work out how to integrate tools and work flows.

Tom Espiner of ZDNet UK reported from London.

New contenders are emerging to challenge the BRIC countries' dominance of the offshoring market.

While India was the "undisputed leader," followed by China and other BRIC countries Russia and Brazil, research firm Gartner's list this year of the top 30 offshoring destinations showed Mexico, Poland, and Vietnam pushing their way up to take them on.

Ian Marriott, research vice president at Gartner, said these countries would be seeking to take advantage of the credit crisis to capitalize on organizations' drive to save costs.

The four countries that dropped out from last year's Top 30 were Northern Ireland, Sri Lanka, Turkey, and Uruguay, while the new entrants were Egypt, Morocco, Panama, and Thailand.

Marriott said the four that dropped out of the list had not underperformed but that the dynamic nature of the market had seen others making strong progress.

Gartner judged the locations on language, government support, labor pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, global and legal maturity, and privacy and security of data and intellectual property.

Strong interest in near-shore locations was a key factor for companies choosing an offshore location, as were language skills, cultural compatibility, time zone, and travel time.

The final list included 13 countries from Europe, the Middle East, and Africa--such as the Czech Republic, Poland, and Hungary, which were valued for their language skills--and for the first time, two North African countries.

The trend for countries in Europe being used as near-shore centers for traditional service providers and large Indian providers also continued.

The study found that South America is becoming an attractive proposition for the United States, the largest buying market for offshore services, and that they are increasingly valued for their Spanish-speaking skills.

Ten countries from the Asia-Pacific region were represented in the list, while there were also emerging countries such as Malaysia, Pakistan, the Philippines, Thailand, and Vietnam--mostly chosen for their attractive costs. Below are Gartner's top 30.

Americas:

• Argentina
• Brazil
• Canada
• Chile
• Costa Rica
• Mexico
• Panama

Asia-Pacific region:

• Australia
• China
• India
• Malaysia
• New Zealand
• Pakistan
• The Philippines
• Singapore
• Thailand
• Vietnam

EMEA:

• Czech Republic
• Egypt
• Hungary
• Ireland
• Israel
• Morocco
• Poland
• Romania
• Russia
• Slovakia
• South Africa
• Spain
• Ukraine

Nick Heath of Silicon.com reported from London.

Two Silicon Valley engineers from China have been sentenced to prison for stealing chip designs and attempting to smuggle them back into their native country, the Associated Press reported.

The two men, Fei Ye and Ming Zhong, pleaded guilty two years ago. They were sentenced Friday in U.S. District Court in San Jose, Calif. According to the AP, they are the first ones convicted of the most serious violations under the Economic Espionage Act of 1996.

Ye is a U.S. citizen, the AP said, and Zhong is a permanent resident of the U.S.

Prosecutors did not allege that China's government actually knew of the crime.

The case started in late 2001 when the two men were arrested at San Francisco International Airport. They had been trying to board a plane with suitcases full of chip design documents from four companies they'd worked at, the AP said.

The four companies: NEC Electronics, Sun Microsystems, Transmeta, and Trident Microsystems. Ye and Zhong had been employed at Transmeta and Trident. Ye also had jobs at NEC and Sun.

Prosecutors said documents showed Ye and Zhong were trying to sell the idea of the start-up as a way to boost China's chipmaking abilities.