Dell Sees Tech Weakness Spreading as Profit Falls

Dell posted a disappointing drop in quarterly earnings and said spending cutbacks on information technology have spread from the United States to Western Europe and Asia, sending its shares down more than 10 percent.

"They're saying lower IT spending is spreading. That is evidence of a global slowdown in IT spending. This certainly isn't good news for tech overall. Dell's outlook is for slower spending—especially in Asia and Western Europe,'' said Tim Ghriskey, chief investment officer at Solaris Asset Management, who also noted weakness in Dell profit margins.

The world's second-biggest maker of personal computers reported second-quarter earnings of $616 million, or 31 cents a share, against a profit of $746 million, or 32 cents a share, in the same period last year.

The results included 2 cents per share in amortization and business realignment costs.

Sales in the most recent period rose to $16.43 billion, compared with $14.771 billion last year.

An analysts' consensus estimate compiled by Thomson Reuters put Dell's earnings at 36 cents a share on sales of $15.95 billion.

Shares of Dell tumbled more than 10 percent in extended trading after closing at $25.21 on Thursday. The stock rose by about 26 percent in the quarter.

(Watch the accompanying video for more on what analysts are saying about Dell's earnings...)

"It looks like Dell's margins were bad. Not surprised to see their margins affected given their change in distribution outlets that they are using, their contributed expansion out of direct sales and to third parties," Ghriskey said. "We would expect the tech group to suffer when the market opens tomorrow morning and overnight as well."


Dell said it will continue to incur costs as it realigns its business, reduces headcount and invests in infrastructure and acquisitions.

"It's a really tough tech market and Dell is obviously cutting costs, but it wasn't enough to offset the pressure on gross margin. What people on the Street wanted to see was revenue growth and a solid gross margin number," said analyst Shannon Cross of Cross Research. "Because if you sell things for no profit, to some extent, what's the point?"

Dell has said it will continue to move to curb costs while competing with Hewlett-Packard. Founder Michael Dell, who returned to the Round Rock, Texas, company as chief executive in 2007, has vowed to cut even more than the 8,800 jobs he targeted last year, and slash costs by $3 billion over several years.