Dell is not as much a computer maker as an odd sort of venture capital fund. The PC business is not a long-term winner. It is big, though, and the hope is that Dell can, over time, use profits, distribution and wherewithal from the PC franchise to cultivate related businesses with better growth and more defensible margins (data centre hardware, software and services).
The U.S. company’s first-quarter results, released late on Tuesday, showed that the hand-off is not going smoothly. The decline in PCs is happening faster than expected: sales of desktops and laptops were off 7 per cent from the year before, a sharp deceleration from the last quarter. Margins at the company as a whole also fell sharply, to less than 6 per cent.
Dell’s data centre business struggled too. Investors pressed control+alt+delete on the stock, sending it down almost a fifth. Expect the disappointments in PCs to continue. Dell attributed the bad quarter to a number of factors: poor salesforce execution, weak demand, diversion of consumer spending to smartphones and tablets, and tougher competition in the low-end and emerging markets.
Perhaps the first two issues are temporary or merely cyclical. But it is very difficult to see why the last two - loss of share to mobile and hot competition in cheaper devices - should change. And these two challenges are related if one thinks of mobile devices as, simply, small and (excepting Apple’s products) cheap computers. What is more, sales prices for PCs have fallen an average of 5 per cent annually over the past five years, according to data from IDC, but these numbers exclude mobile devices. Including these would show that computers have taken a big, sudden step down in price. And Dell’s competitors at the low end are vicious. Consider Lenovo, which reported quarterly annual growth of more than 50 per cent on Wednesday. The Chinese maker gets by on 2 per cent margins. Dell says it will focus on higher-end, higher-profit computers. Alas, they will not stay high-profit for long.Report Typo/Error