Dell gets slammed as slowing economy freezes new IT spending

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Profit at Dell (DELL) fell 48 percent in the quarter ended Jan. 30 and flagging sales were mostly to blame, the company announced after markets closed this afternoon. The second-largest computer maker's earnings sank to $351 million, or 18 cents a share, badly missing analysts' expectations.

There's no doubt consumers' recession-inspired frugality contributed much to Dell's disappointing quarter. But digging into the numbers, the real culprit becomes clear. Sales to North American corporate customers, which account for nearly half of Dell's business, fell by 17 percent from the same period a year ago. Meanwhile, sales of computers to consumers fell just 7 percent and only accounted for 22 percent of revenue to begin with.
Dell knows the economy is driving sales down. "A lot of IT spending is being deferred until there's better economic visibility," said CEO Michael Dell in a statement accompanying the earnings announcement.

The company slashed prices -- average revenue per unit fell 4.7 percent compared to a year earlier -- as it tried to spark sales. And it is stepping up a cost-cutting plan it announced last March. It now plans to slash $4 billion in expenses annually by 2011, up from the $3 billion it originally announced.

In the press release, Michael Dell called an economic recovery "inevitable." But if his company doesn't figure out a way to get its corporate customers to start buying again, there could be more ugly quarters in the meantime.
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