Business Tech

Updated at 1:55 p.m. PDT with information from the earnings call. Also corrected decline in operating expenses.

The quarter that ended on May 1 was a rough one for Dell.

The PC maker announced Thursday it recorded a net income of $290 million for the first quarter of fiscal year 2010, and earnings of 24 cents per share, or 15 cents per share when accounting for write downs from severance pay and factory closings during the quarter. That's down 63 percent from the $784 million, and 38 cents per share recorded a year ago. Revenues were also down 23 percent to $12.3 billion.

Analysts on average had been expecting revenue of $12.66 billion, and earnings between 19 cents and 27 cents per share.

"It started out as a slow first (fiscal) quarter. It picked up a bit in the second half of the quarter," Chief Financial Officer Brian Gladden said on a call with reporters Thursday. But he said it was "still a challenging IT demand environment" and emphasized that Dell is not yet ready to say that the drop in demand has yet reached its lowest point.

Dell has been saying for the last few quarters that since its core customer base--corporate IT departments--are being battered by the economy, it would try to focus on internal housekeeping tasks like cutting expenses and operating costs. Gladden said the company's operating expenses had fallen by $101 million from the previous quarter and by $312 million from a year ago.

Despite that, Dell is still facing major challenges. Revenues decreased in every major business unit significantly, though a relatively bright spot appeared to be the consumer group. Consumer revenue was down 16 percent to $2.8 billion, and consumer shipments rose 12 percent from a year ago. It's been spending much more on research and development on products down in Round Rock, Texas, and produced yet another Netbook, and more notebook models--including the high-priced Adamo--during the quarter.

The company also continued to expand the number of places its PCs can be bought: there are now 30,000 retail outlets worldwide, which is contributing to the growth in the consumer business.

But retail is clearly not the singular solution. Dell needs to do something to turn the ship around, which might come from outside the company. It has not taken the option of an acquisition to achieve quick growth off the table. IBM is suing to keep its former M&A chief David Johnson from joining Dell, which has reportedly offered him the position of vice president of strategy. Gladden on Thursday declined to discuss Johnson's hiring, but did say that mergers and acquisitions would "continue to be an important part of how we build the company."

"We've done 13 or 14 acquisitions in last few years. We're not sitting back and watching other companies do consolidation," he said.

Updated at 1:50 p.m. PST with comments from CFO Brian Gladden.

Dell's profit sank drastically during the final quarter of 2008.

The PC maker reported fourth-quarter revenue of $13.4 billion Thursday, a 16 percent drop from $15.9 billion reported the same quarter a year ago. Dell's profit for the quarter totaled $351 million, or 18 cents per share, compared to $671 million and 31 cents per share the year before. That's nearly a 48 percent drop in profit. Analysts had been anticipating earnings per share of 26 cents.

Dell had reported last month it would be forced to take a pre-tax charge of $280 million, or 11 cents per share, related to cost-cutting and restructuring measures taken during the quarter.

The company continued to cite the "challenging" global environment and the reduction in IT spending by large corporate customers, a segment in which Dell is heavily invested.

Dell CFO Brian Gladden

(Credit: Dell )

Many of the company's customers began to defer spending starting in the summer, and it "continued to deteriorate through the second half of the year," Chief Financial Officer Brian Gladden said during a conference call with reporters. "We expect continued weakness during the current quarter."

Gladden tried to keep the focus on the company's progress on cutting costs. Dell cut operating expenses by 16 percent, or $363 million, during the fourth quarter.

He also said there would be more to come. Gladden said the company will be able to take $4 billion of costs out of its budget by 2011, up from the previous goal of $3 billion announced last year. The costs will come from improving on manufacturing and supply chain costs, as well as operating expenses. When asked if that included more job cuts, Gladden didn't deny that it would. It's "not just labor, not just people," he said.

Though Dell managed to ship 18 percent more consumer PCs for the quarter, because consumers are gravitating toward cheaper notebooks and Netbooks, revenue dropped 17 percent. But the full year was actually an improvement on 2007--revenue increased 11 percent to $11.5 billion.

Dell's stock dropped 2.3 percent to $8.02 per share in after-hours trading.

When Dell reports its fiscal 2009 fourth-quarter earnings next month, there will be some hefty pre-tax charges, the PC maker said Wednesday.

The charges will cover relocating some of its manufacturing and distribution operations by fiscal year 2011 and accelerating the vesting of stock options that were previously awarded.

Dell, which will announce its fourth-quarter results on February 26, said it expects the pre-tax charge will be for $280 million, or 11 cents a share.

In its filing with the SEC, Dell said the cost-reduction measures were part of its plan announced in March to reduce its expenses by $3 billion. The company says there will be more cost-cutting measures during fiscal year 2010, which begins January 31.

CNET News reporter Dawn Kawamoto contributed to this story.

Updated at 1:37 p.m. PT with comments from earnings call.

Dell on Thursday reported third-quarter profit of $727 million, or 37 cents per share, and revenue of $15.16 billion.

Profits were down 5 percent from the same quarter a year ago, though earnings per share improved 9 percent. Revenue was down 3 percent.

"We expect the short term to stay challenging," says Dell CFO Brian Gladden.

(Credit: Dell)

Most analysts had been anticipating earnings of 32 cents per share and $16.3 billion in sales.

A year ago, Dell earned $766 million, or 34 cents per share, on $15.65 billion in sales.

Chief Financial Officer Brian Gladden said on a call with reporters Thursday that the company is "pleased" with its performance during the quarter, "especially against the backdrop of the global economic environment."

Looking to the future, Gladden said Dell continues to see a slowing in demand "almost all" of its businesses. "We expect the short term to stay challenging," he said, but refused to provide any additional commentary on what Dell expects for the fourth quarter or for next year.

He did say that the company would make plans on the expectation of tightening IT budgets in the next year.

Some bright spots for Dell included its global consumer business, which saw a 10 percent improvement in profits and shipments that rose by one-third.

Dell was also able to reduce its costs further than expected. The company previously said it had met its goal of reducing employee headcount by 8,900--Gladden said Dell actually cut 10,800 positions.

The company said delaying or canceling any planned products was not part of its cost-cutting measures. Earlier there had been reports Dell had delayed the debut of a music player product until after the holiday season.

Regarding Netbooks, Gladden described the product category as a "complementary" business, and said that market response for its new Inspiron Mini products as been positive. So far, he said, Netbooks haven't affected the demand for any of its other products.

On a separate call later Thursday with investors, chief executive Michael Dell said that including 3G capability in its Netbooks has been well-received and that the company is working on signing up more wireless carriers to carry the Mini Inspiron. So far the company has partnered with European carrier Vodafone.

Dell has been battling to get its costs under control as part of a broad turnaround plan. The company will continue to look at ways to get the costs of its products down, including reviewing its supply chain and manufacturing process.

Dell shares rose 5 percent to $10.30 in after-hours trading.

Hewlett-Packard just showed its cards early, revealing Monday that next week it's going to inform its investors of some pretty impressive revenue gains during the third quarter.

That comes despite the faltering economy and increasingly ominous signs that when it comes to tech, this recession will hit the PC market the hardest. As we reported here earlier, HP is certainly well-positioned to weather a downturn, while rival Dell is still in the midst of a turnaround, and is on slightly shakier ground.

Is Dell's turnaround moving breezily, or does the company face stiff headwinds?

(Credit: Dell)

Judging by analyst predictions and industry reports, Dell's earnings won't be nearly as impressive. Both UBS and Bernstein Research put out analyst reports saying they expect Dell to report revenue below expectations, but for earnings to be about what they (and the rest of Wall Street) expected, at 32 cents per share. UBS expects third-quarter revenues of $16.5 billion, while the Wall Street consensus is $16.4 billion.

Dell will report its earnings after the close of the markets Thursday. Here's what we'll be looking for when founder and chief executive Michael Dell and CFO Brian Gladden get on the phone to discuss third-quarter results with company investors.

• Margins. The company's operating margins are key, according to Bernstein analyst A.M. Sacconaghi, because it's had the most direct recent impact on Dell's stock.

The third-quarter operating margin should be an improvement over the previous quarter, analysts believe because Dell has been less aggressive about competing on price this quarter, especially in Europe. Also, the company finally shed the last of the jobs slated for elimination more than a year ago, and component pricing was more favorable during the quarter as well.

However, Dell has also continued to expand its retail presence and build up its business in international markets, both things that come with lower margin expectations.

• Netbooks. There's still concern over profitability in the consumer product segment. During a recent earnings call, Dell said its relatively new consumer business wouldn't improve in that regard until the second half of 2009.

Dell's Mini 9: Welcome to the Netbook craze.

(Credit: Dell)

However, the company has embraced the PC industry's latest obsession: Netbooks. Both the Inspiron Mini 9 and Mini 12 were announced this year, though only the Mini 9 will have shipped to customers during the quarter.

Though Dell probably won't tell us exactly how many Netbooks it's sold, we can anticipate the company will at least bring it up to demonstrate to investors it's embracing what they will say is a whole new product category with a lot of potential. (In reality, it's not clear whether Netbooks are simply cannibalizing the budget notebook category.)

• Cost cutting. Though it recently finished the 10 percent staff cuts it promised in 2007, both UBS and Bernstein analysts say they see room for further layoffs to trim even more costs. Dell earlier this month told employees it was instituting a hiring freeze, dismissing contract employees, and offering voluntary unpaid leave. If that's not enough, further headcount reductions are at least conceivable.

• The economy. The company said in September it was already seeing "softness" in IT spending in the U.S. and Western Europe. IDC issued a report last week forecasting just 2.6-percent growth in corporate technology budgets worldwide.

Though Dell has not offered forward-looking guidance to investors for the last several quarters (and is expected to continue the tradition), investors will likely hammer Gladden and/or Dell with questions about how the faltering economic environment is going to affect the PC makers' outlook for the critical fourth-quarter holiday season and into next year.

Dell employees received a memo from founder and CEO Michael Dell recently asking them to take some time off without pay.

It's not meant to be punitive, but rather a measure to help the Round Rock, Texas, company save some money as the economy continues on its uncertain path. The request made to employees is also an effort to avoid possible layoffs, according to a report in the Austin Business Journal.

A Dell spokesman confirmed the memo's existence and said that it was part of a wider program of cost saving that had been instituted. Besides offering one to five days of unpaid leave, the company has also placed a temporary freeze on new hires, eliminated contract employees, and offered severance packages to workers to leave voluntarily.

Though Dell recently met its goal of cutting its employee rolls by 10 percent, the memo stated that more layoffs could be coming if these cost-cutting measures didn't achieve the desired results, which Dell did not specify.

The company recently reported a 17 percent dip in earnings after a year of showing signs of good growth.

Japanese electronics maker Pioneer is set to report wider financial losses, and has named Susumu Kotani as the company's new president.

Company board member Kotani will replace Tamihiko Sudo as president. On March 31, Pioneer will report a net loss of 78 billion yen, or $783 million, the company revealed. It will be the company's fifth straight quarter without a profit.

To cut costs, the company will lay off 2,000 workers, according to a Bloomberg report. Pioneer had already planned to stop making plasma panels for its flat-screen TVs by February 2009 (Panasonic will supply the panels instead).

Fellow Japanese electronics maker Sony also reported less-than-stellar quarterly results, and pointed to the same problems as Pioneer: a stronger yen-to-dollar conversion rate and the global economic slowdown.