It was quite a different message from Michael Dell, CEO of the eponymous tech firm, compared to HP’s Leo Apotheker (see No more ‘miracle margins’ at HP Services). Although Dell also experienced a decline in consumer PC revenues in the Q1 (to 29th April), down 7% yoy vs 23% at HP, segment operating margins soared to 4.5%; consumer PC profitability had flatlined a year ago. Indeed it was a bumper quarter for Dell’s margins overall, reaching 9.2%, from 5.5% a year ago. In stark contrast to HP, Dell raised FY guidance for both revenue and earnings.
It is worth taking a bit of a peek under the covers, though, as the some of the underlying messages are not quite as bullish as the headline numbers may suggest. For example, revenues for Dell’s Perot-enhanced services business rose by 6% yoy to $3.0b (exactly one-third the size of HP Services). However, gross margins (Dell doesn’t segment operating margins) fell two points to 27%, and were down 3 points on the prior quarter. This must surely be pricing pressure. However, CFO Brian Gladden alluded to “a progression in our (services) sales pipeline and a greater number of deals coming to closure” after a year of elongated sales cycles. Meanwhile, Dell’s public sector business – like most everyone else’s – was still experiencing “budget-related timing weakness”.
And like HP, Dell was caught out by the weaker demand in the Consumer market. But Michael Dell was not totally sold on the tablet story – yet: “(we) can’t really find a lot of companies that are going to have 3 devices for all of their users. Yet the tablet, in almost all the instances we found, is a third device… But I'm not seeing this replacing either the smartphone or the PC in large numbers of organizations” There we go. But he sees lots of ‘near-term services business opportunity “helping (customers) deal with tablets from a security standpoint, manageability standpoint”. Oh yes indeedy.