Having upped its full year guidance for revenue and profitability just last quarter (see Dell’s ding dong quarter), Dell has had to make a sharp u-turn in Q2, slashing its sales growth forecast for the rest of the year in response to “a more uncertain demand environment”. CFO Brian Gladden blamed a slowdown on government and consumer sectors during the quarter – government was down 3% YoY, and consumer, although up 1% YoY, was down 3% on the previous quarter. FY sales growth is now expected to be between 1% and 5%, down from the previous 5% to 9% range. Investors responded by knocking 9% off Dell’s share price on Wednesday.
Headline revenue for the second quarter ended 29 July, grew 1% to $15.7b, although up 4% sequentially, and operating profits were $1.15b (7.3% margin vs. 4.8% the previous year), so margins are heading in the right direction. It is on the sales front where the pain is being felt. Dell suffered big falls in storage products, which slumped 20% (due to the wind down of a reseller agreement with EMC), and desktop PCs, which were down 3%. Servers and networking however reported strong growth of 9% - but this only helped product sales to a flat performance YoY.
However it is Dell’s Perot-enhanced services business where our real interest lies. And here revenue performed well, up 6% to $2.04b, and up 3% QoQ, and gross margins were at 13% vs. 12% last year (Dell doesn't break it down any further). CFO Brian Gladden said that there was “very good growth in new signings” at $1b in Q2 and $1.3b for the first half. Dell’s services backlog is now $15.4b, up 11% from a year ago, and this is split between $6.8b in warranty business and $8.6b in contracted services. However Gladden did point out that services margins are flat due to the pressure from initial upfront services costs on new deals, but over time this will “generate sustained profit”. Clearly Dell still has some work to do here then.