Dell Shares Flat After Revenue Forecast
Once the world's top PC maker, Dell has slowly lost market share to rivals. In 2003, Dell had over 17% share of the PC market. That dropped to under 13% at the end of 2009. Today, Dell is the No. 3 PC maker after Hewlett-Packard (HPQ) and Acer. Even with Michael Dell's return to the company, the founder couldn't keep up with competition.
And between price wars on what have become nearly commoditized items and increasing component costs, margins have also been squeezed. That's been a sore issue in the latest quarter. Even as Dell reported strong quarterly results, they didn't satisfy Wall Street as gross margins fell short of expectations. Analysts say that Dell has to shift more of its business to the higher margin segments.
With this forecast, Dell is confirming the long-awaited technology spending recovery. "An overdue client refresh among commercial and public customers is underway and we anticipate it will continue, and we will benefit from a strong cycle," said CFO Brian Gladden said. CEO Michael Dell added, "With improvement in the global economy and increased IT spending in commercial and public segments, we have confidence in our ability deliver solid operating income, cash flow and returns to our shareholders."
In its first forecast since 2006, Dell also projected that operating income will increase by 18% to 23% over fiscal 2010 and cash flow from operations will be greater than net income for the current year. Analysts may also want to hear more about Dell's plans to further cut costs beyond the $4 billion in savings it had targeted through fiscal 2011.