Dell revenue drops slightly in Q3, but earnings rise

The company is focusing more on the enterprise market to try to boost profits

Dell on Tuesday reported a small dip in revenue for the third quarter, owing to weaker consumer demand for PCs, but recorded an increase in earnings.

Revenue for the quarter that ended Oct. 28 was $15.37 billion, down slightly from the $15.4 billion reported for the same quarter last year. Analysts expected revenue of $15.6 billion.

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The company's revenue from mobility, which includes laptops and tablets, fell by 2 percent year over year, while desktop revenue fell by 6 percent. The company's storage revenue fell by 15 percent year over year. Combined, those product lines accounted for 56 percent of the company's overall revenue.

However, revenue from enterprise solutions and services, which includes servers, storage and networking, rose 8 percent to $4.7 billion, which was an all-time high, Dell said.

The company reported $893 million profit, or $0.49 per share, for the quarter, compared to $822 million, or $0.42 per share, in the same period last year. Excluding one-time charges such as costs related to acquisitions, the company reported earnings of $983 million with earnings per share of $0.54. Analysts had forecast earnings of $0.47 per share.

Dell's consumer business has taken a back seat as the company tries to focus more on the enterprise market, where profit margins are higher. The PC market is hurting because of thin margins and a slowdown in unit shipments. Dell is trying to move a larger part of its revenue to its enterprise solutions and services business, which include servers, storage, networking, and services.

The enterprise business reported "record revenue" of $4.7 billion, CFO Brian Gladden said on a conference call. Dell benefitted from selling higher-priced servers and other products, he said. The company's expansion in the data center is helping it grab additional networking and services business alongside the servers it sells.

A big growth area in the quarter was the small and medium-size business segment, where server and networking revenue climbed 18 percent year over year, Gladden said.

Consumer revenue fell primarily due to business declining in the U.S. The European business stabilized, while the Asia-Pacific region saw strong revenue growth, Gladden said.

Dell is also trying to boost product margins by selling more higher-end PCs. The move toward selling more of its higher-priced XPS PCs has been paying off, with XPS revenue up more than threefold year over year, Gladden said. XPS PCs now contribute 20 percent of Dell's consumer revenue.

"We grew in the right places," Gladden said. "Migration to higher-value products has proven to be effective."

Dell will introduce a new ultrabook in the fourth quarter, Gladden said. It has already said its future tablets and smartphones will be aimed primarily at a business audience.

The company is watching the flooding situation in Thailand and has loaded up on hard-drive components to mitigate any impact, said Jeff Clarke, Dell's vice chairman of global operations and end user computing solutions. Research firms have warned that the flooding will eat into PC sales in the first quarter next year.

Dell has dealt with component shortages effectively in the past, Clarke said. But the flood waters haven't receded, and the company will keep an eye on the situation and allocate resources as needed, he said.

Hard-drive prices may go up in the fourth quarter, but that should be offset by an expected reduction in costs of other components, Gladden said.

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