Dell slides after cutting revenue outlook on weak IT spending

ROUND ROCK, Texas ― Shares of Dell Inc. fell more than 7 percent in pre-market trading on Wednesday, a day after the world’s second-largest PC maker slashed its full-year revenue forecast, weighed down by weak technology spending.

It forecast fiscal 2012 revenue growth at 1-5 percent, down from 5-9 percent, and said weak government and corporate spending may not hold up in the face of flagging economic growth.

Analysts said the lowered outlook was not a surprise, given all the economic uncertainty.

Dell reported better-than-expected margins in the second quarter, but investors focused only on the lowered outlook and worrying comments.

“Dell’s shares will likely remain in a trading range near term as investors struggle to weigh better profitability against slower sales growth,” RBC Capital Markets wrote in a research note to clients.

The brokerage lowered its price target to $17 from $20, but maintained its “sector perform” rating on the company’s stock.

Dell gets three-fourths of its revenue from sales to large enterprises, while Hewlett-Packard (HPQ.N) gets a little more than half from the same.

But continuing soft sales to consumers have troubled HP, which has a more diversified hardware and services portfolio, over the last several quarters.

In the second quarter, HP cut its profit forecast for the year, saying it needs to invest heavily on hiring and expanding its services division to recover from “missed opportunities” under previous CEO Mark Hurd.

Both the PC giants are venturing out of traditional comfort zones and into higher-margin services as they take on powerful mobile gadgets such as Apple Inc’s (AAPL.O) iPad.

However, BofA Merrill Lynch expects the low investor sentiment on Dell, its cheap valuation and possible gains from an enterprise refresh, will position the shares to outperform in 2011.The brokerage raised its price target to $18.50 from $18, and maintained its “buy” rating.

Dell’s shares were down 7.1 percent at $14.68 in trading before the bell. They closed at $15.80 on Tuesday on Nasdaq.

Shares of bigger rival HP, which is due to report results on Thursday, were also trading down more than 2 percent at $31.90. They had closed at $32.61 on Tuesday on the New York Stock Exchange.

Dell-commissioned study reveals companies that listen realize business results

ROUND ROCK, Texas ― Companies that launch listening and digital engagement initiatives are rewarded with improved customer satisfaction scores, loyalty and brand metrics, according to a Dell-commissioned research study conducted by Forrester Consulting.

Results of the July 2011 study “Listening and Engaging in the Digital Marketing Age” on the state of social media in U.S. firms was released today. Forrester surveyed 200 medium and large U.S.-based marketers across three key industries, including high tech, media/entertainment and utility and banking services.

Forrester’s study revealed that while more than three-quarters of the companies surveyed monitor online conversations and respond to customer feedback through social media, only 20 percent of the survey respondents place social media at the core of their marketing plans.

Technology companies lead in integrating social media programs throughout their organizations at nearly double the rate of media and one and a half times the rate of utility and banking service organizations. Nearly all the companies surveyed have specific plans to increase their social media investments, with 73 percent planning to add employees focused on listening and engagement initiatives in the coming year.

While making strong progress, businesses are still lagging behind their customers, 80 percent of whom use social media:

  • 50 percent of companies surveyed say their social media efforts are serious but not a core function
  • 16 percent reward customers whose ideas they use
  • Only 6 percent claim that their companies’ listening and engagement initiatives are very integrated

But companies’ investment in listening is on the rise and the benefits are tangible:

  • 64 percent of respondents are incorporating customer feedback into products or services
  • 76 percent distribute customer feedback internally
  • 31 percent are enhancing sales by offering incentive programs for customers who engage online, including deals and discounts

Dell plans to keep up acquisitions, sustain margin growth

AUSTIN, Texas ― Dell Inc. plans to keep making acquisitions and expects to hold on to recent gains in profit margins, as it expands into areas such as storage and computer services.

CEO Michael Dell said Wednesday the computer maker will focus on “midmarket opportunities,” including small and medium businesses in the public sector and the healthcare industry as the company looks for long-term revenue growth of about 7 percent.

Addressing a key investor concern, executives at an annual analyst conference said they expect to sustain recent improvements in gross margins, and continue to see strength in corporate information technology upgrades.

Shares in the company, once the world’s top maker of computers, closed up 2.6 percent at $16.42.

The company, which is diversifying its revenue base in the face of weakened consumer demand, has enjoyed renewed favor from investors after quarterly results rose and it raised its 2012 outlook in May on strong corporate sales and improved profitability.

“We heard a much better tone and story than in recent years. Dell still has a way to go on their transformation, but we were impressed that they have accomplished what they set out to do over the last year,” said Wells Fargo analyst Jason Maynard.

“It is not entirely clear if the recent improvements in margins are temporary given better demand/spending versus their structural changes. For now, we believe this remains the primary debate on the stock,” he said in a client note.

Dell, which did not update its forecasts for fiscal 2012 at the conference in Austin, Texas, has been trying to move into fast-growing tablet and smartphone markets and such businesses as data center equipment.

Storage and service remain a key area of growth for the company. Dell expects revenue from storage to grow 15 percent to 20 percent a year on average in the next four years, and revenue from services to expand an average 7 percent to 9 percent a year over the same period.

Dell, which has steadily conceded market share to Hewlett-Packard Co. and Acer Inc. in past years, has shown progress on improving margins by moving into higher-margin businesses.

Its first-quarter gross margin was 23.4 percent, the highest since the same quarter in 1992. The company also has been focused on wringing savings out of its supply chain, helping boost margins.

 

HP earnings disappoint investors while Dell delivers blowout

NEW YORK ― Hewlett-Packard Co. slashed its 2011 earnings forecast as it embarks on a spending spree to revamp a troubled division, while long-time foe Dell In.c delivered another blowout profit.

The twin leaders of the global PC industry ― under siege from the growing popularity of powerful mobile gadgets like Apple Inc’s iPad ― are increasingly venturing into higher-margin services: helping corporations set up networks, servers and storage to engage the cloud.

HP CEO Leo Apotheker vowed to invest heavily on hiring and expanding its services division ― everything from computer maintenance to consulting ― to recover from “missed opportunities” under predecessor Mark Hurd.

But investors sent the stock tumbling more than 7 percent, fearful that costs ― tightly controlled under Hurd ― would balloon and shave points off already-pressured margins.

Dell, on the other hand, showed good progress on advancing margins to a better-than-anticipated 23 percent precisely by moving into higher-margin enterprise solutions and services. Its stock climbed 5 percent.

Dell has been in turnaround mode for more than a year and its efforts are now visible in the results.

“Dell was a company that was struggling and it’s paid its dues in terms of investing,” Shaw Wu, analyst with Sterne Agee said. “Now you’re seeing the fruits of that labor.”

“HP underspent, in services in particular, and they’re suffering for it,” he added.

HP trimmed its sales forecast for the second straight quarter. Dell, on the other hand, raised its operating income outlook for the year on improved profitability.

The latest revision to HP’s outlook, the second since Apotheker took over seven months ago, raised questions about the former SAP CEO’s ability to spark growth at the technology behemoth.

Several Wall Street investment houses, including Credit Suisse and Barclays, responded to the results by lowering their recommendations or price targets on the stock.

HP and Dell’s results underscored the weakness in the global PC market, which is under siege from the growing popularity of mobile devices such as Apple Inc’s iPad.