Arik Hesseldahl

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Dell Shares Down 10 Percent After Earnings Report

Shares in PC maker Dell have dropped more than 10 percent today in the wake of an earnings report yesterday in which the company reported profits that beat expectations but offered a poor sales outlook.

Dell shares are down by $1.59 to $14.21, representing a drop of more than nearly 10.2 percent as of 9:40 am San Francisco time, amid heavier than usual trading volume.

The company has been seeking to reduce its exposure to the more fickle markets for consumer PCs and other devices and investing more aggressively in building up its enterprise IT offerings, says Brent Bracelin, an analyst with Pacific Crest Securities, in a note to clients today. Dell’s exposure now accounts for less than 5 percent of operating profits, he wrote.

To that end, one small bright spot came in the enterprise business. While sales of notebooks fell short of expectations by $200 million, dropping to the lowest growth rate in almost two years, these results were offset in part, Bracelin says, by stronger growth in the server and storage business. This helped boost per-share earnings to 54 cents, which beat the consensus by five cents, despite the fact that sales fell short of expectations by $100 million. Dell also reduced its sales forecasts for the full year.

The shift toward the enterprise has helped Dell shares to rise by 17 percent so far this year, beating the Nasdaq, which has fallen about 5 percent. “Most of the gains can be attributed to four consecutive quarters of greater than 50 percent operating profit growth driven by an enterprise IT spending recovery that was accentuated by Dell’s transformation in adding higher-value enterprise products and services,” Bracelin wrote.

But all good things must come to an end. Contracting IT budgets and the larger economy are delivering a one-two punch to Dell’s prospects. Bracelin wrote that it could be a year before Dell’s growth starts to accelerate again.


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