Dell expects disk drive shortage to hurt revenue

Associated Press
In this Nov. 14, 2011 photo, a Dell keyboard is posed with Dell packaging in Phoenix. Dell Inc., reports quarterly financial results Tuesday, Nov. 15, 2011, after the market close. (AP Photo/Ross D. Franklin)
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SAN FRANCISCO (AP) — Dell is likely to be hampered for a couple quarters by an industry-wide shortage of computer storage drives resulting from the recent flooding in Thailand, the computer maker said Tuesday.

Dell predicted full-year revenue near the low end of the guidance it issued in August, which called for revenue growth of 1 percent to 5 percent over 2010 and was in turn a reduction from a previous forecast.

Dell Inc. cited the uncertain economy, as well as the disk drive shortage. The Thai flood waters, which started spreading in August, are now receding, but they closed many of Thailand's tech-related factories, including a bevy that produce a critical component of personal computers: hard disk drives.

During a conference call with analysts to discuss the company's third-quarter results and outlook, Dell's executive leading manufacturing, procurement and the supply chain, as well as PC engineering, design and development, said the "complexity" of the situation makes it hard to determine the scope and length of hard drive shortages. Jeff Clarke said this means the industry must keep an eye on how it's allocating its resources "at least" throughout the first quarter of next year.

"Our goal is to mitigate any impact to our customers in Dell, and our teams will be working throughout the quarter to do just that," he said.

The shortages come as the personal computer industry already is dealing with decreased demand. Sales have slowed, particularly in the U.S. and Europe, because debt and unemployment fears and the growing popularity of tablet computers have led many consumers delay replacing PCs. In addition, the March 11 earthquake and tsunami in Japan hurt supplies of memory chips.

Hewlett-Packard Co. plans to report Monday on how it fared during the most recent quarter and this should offer more insight into the performance of computer makers overall.

Dell's forecast, lowered in August from a previous estimate of 5 percent to 9 percent growth, translates to $62.1 billion to $64.6 billion. Analysts expect $62.6 billion in revenue.

Also Tuesday, Dell said that its third-quarter net income rose 9 percent though revenue remained flat from last year as the computer maker continued pruning less profitable parts of its business.

For the quarter that ended Oct. 28, Dell earned $893 million, or 49 cents per share. This compares with $822 million, or 42 cents per share, in the same quarter in 2010.

Excluding one-time items, the Round Rock, Texas-based company said Tuesday that it earned 54 cents per share. This is 8 cents higher than what analysts polled by FactSet expected.

Revenue was flat at $15.4 billion — lower than the $16.2 billion analysts expected.

Dell's revenue from large corporations rose 4 percent to $4.5 billion, while its revenue from consumers fell 6 percent to $2.8 billion. Revenue from the public sector fell 2 percent to $4.4 billion, and revenue from small- and medium-sized businesses inched up 1 percent to $3.7 billion.

Brian Gladden, Dell's chief financial officer, said several parts of the company, including its consumer and public sector businesses, felt "challenging demand dynamics" during the quarter.

But while Dell and other PC makers struggle, Apple Inc., a key player in inventing the PC some 30 years ago, is thriving because the company has pioneered new markets — including the tablet computer market, where its popular iPad was the first broadly successful device.

Aside from demand for Apple's computers, consumer demand for PCs has cratered in the U.S. and Europe. Although consumers make up less than 20 percent of Dell's revenue, they remain a powerful force in the digital economy. By snapping up iPads and smartphones, consumers are demonstrating that some hot new technologies — just not PCs — can be strong sellers even in hard economic times.

Dell shares fell 25 cents to $15.38 in after-hours trading after the company reported its results. They'd risen 31 cents, or 2 percent, to finish regular trading at $15.63.

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