Dell's net income drops 63% in Q1

IDG News Service - Dell on Thursday reported a 63% fall in net income during the first quarter of 2010, triggered partly by reduced PC sales and a restructuring charge related to cost cutting.

The company posted net income of $290 million for the quarter ending on May 1, falling from the $784 million it reported in the first quarter of last year. Dell reported earnings per share of 15 cents. Excluding one-time items, earnings per share was 24 cents, slightly over the consensus forecast of 23 cents per share from analysts polled by Thomson Reuters.

The company reported a charge of $185 million related to restructuring expenses.

Dell's quarterly revenue fell to $12.3 billion during the first quarter, a 23% drop from the previous year. Revenue was short of analyst expectations of $12.6 billion.

Despite the reduced earnings, Dell tried to stress that it was taking steps to maintain profitability during the challenging economic environment. The company continues to cut costs and is looking to get deeper into sustainable markets such as data centers, services and software.

"Signals about the demand environment are mixed, but we're preparing for what we believe will be a powerful replacement cycle, with virtualization and managed services playing larger roles in what customers want and Dell provides," said Michael Dell, chairman and chief executive officer of the company, in a statement.

The company said earlier this year that it plans to reduce costs by $4 billion by the end of fiscal 2011, a change from the original target of $3 billion announced in May.

Revenue for mobile products -- which includes laptops -- was $3.88 billion during the quarter, a drop from the $4.85 billion it reported last year. Desktop PC sales were $3.16 billion, a massive drop from the $4.87 billion reported last year. Other business units -- including servers, storage, software and enhanced services -- also had declines in revenue.

PC shipments are slowing down as consumers and enterprises hold back on spending during the recession. Dell's PC shipments fell by 16% in the U.S. year-over-year during the first calendar quarter of year. Rival Hewlett-Packard surpassed Dell as the number-one PC vendor in the U.S. during the quarter, according to IDC.

Despite a fall in revenue, consumer laptop unit shipments went up 32% year-over-year, partly driven by demand for low-end laptops such as netbooks, said Brian Gladden, chief financial officer at Dell, during a conference call. Consumer desktop unit shipments fell by 20%.

Despite the impact of low-end laptop prices on Dell's revenue during the quarter, products such as netbooks are becoming more relevant to the company's mix of products, and Dell is adapting to the changing demand environment, Gladden said.