Shares in Dell are down 13% in after market trading on Nasdaq, following the company’s disappointing Q1 results. Dell grew a bit in services, but unstoppable competition is putting a big dent in device sales.
So overall revenue was $14.4bn, down 4% year-on-year. The key problem areas are in devices. Desktop sales were down 1% and software/peripherals down 7%. Meanwhile revenue from the “mobility” line of business, i.e. laptops, fell by no less than 10% to $4.2bn.
In their comments to analysts, Dell management pointed to the continuing effects of the Thai floods, the company's poor execution in sales and the tough economic climate as causes of the dramatic fall in device sales. But it’s really the other reason they mentioned - namely ever-sharper competition - that surely should give them the most cause for concern.
The fact is that tablets (i.e. predominantly Apple iPads at present) are eating into laptop sales. And as consumerisation and BYOT take hold in the enterprise, this phenomenon is going to hit Dell, HP and other PC manufacturers in the business environment too (see Dell: the perils of BYOT and Dell pulls its “losing streak” in the US).
Meanwhile, much of the device growth in developing markets is being driven by demand for low end devices, a space where Dell tends not to play. Dell keeps pushing its high-end ultrabooks - lovely devices no doubt, but they’re just not finding a big enough market.
There was better news in services, where revenue grew by 4% to $2.1bn and the order backlog was up 9%. We still have the concern, nonetheless, that Dell’s positioning in services is too broad. The company undoubtedly has an opportunity to emerge as a key player in the growth market of mid-market and smaller corporate infrastructure services. But thus far it hasn’t executed on this, at least on this side of the Atlantic.
Dell is forecasting 2-4% sequential growth in Q2, based on the seasonality seen in previous years. But that shouldn’t disguise the significant strategic challenges it faces. Like HP, at current strategic course and speed, the company runs the very real possibility of rapidly going from leading player to also-ran in the personal computing devices market.