Dell desktop, storage revenue drops in Q2

However, Dell reports strong profit growth in the second quarter

Dell had strong profit growth in the second fiscal quarter of 2012, although the company's revenue was hurt by a drop in sales of storage and desktop products, Dell said on Tuesday.

On a GAAP (generally accepted accounting principles) basis, Dell recorded a net profit of $890 million for the quarter ending on July 29, up 63 percent compared to the same quarter a year ago. The company recorded earnings per share of $0.48. Net income on a non-GAAP basis was $1 billion, an increase of 60 percent, and 0.54 per share, 5 cents above the consensus estimate from analysts polled by Thomson Reuters for earnings per share.

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Dell's overall revenue grew by just 1 percent to $15.7 billion, and the company's product revenue, minus software, was flat compared to the previous year. However, Dell's services revenue grew by 6 percent year over year.

The company's revenue results were mixed across its enterprise and consumer product lines. Dell's desktop revenue was $3.7 billion, dropping by 3 percent compared to a year ago. Storage revenue was $502 million, dropping by 20 percent. The company's laptop revenue grew by just 1 percent year over year to $4.7 billion.

However, the company's server and networking revenue grew by 9 percent to $2.05 billion.

The company is trying to move to higher-margin areas to deliver better results, the company said in a statement. Dell said the demand for servers and services was solid during the second quarter.

"We continue to see great momentum in the high-growth areas of our business," said CEO Michael Dell in a statement.

Overall large enterprise revenue totaled $4.6 billion, growing 1 percent year over year. The company is increasing its focus on the midmarket -- companies with up to 5,000 employees -- and looking to acquire companies to grow its enterprise hardware and software portfolio, Dell said on a conference call.

The company also wants to focus on cloud and security services for the midmarket, Dell said.

The company experienced some hiccups in the storage supply chain, which affected revenue, said Brad Anderson, senior vice president of the Enterprise Solutions Group. Anderson did not describe the issue in detail but said it has been "rectified."

Dell is also preparing to release new EqualLogic software and hardware, which hurt demand for storage products in the second quarter, Anderson said. The new products will bring a "bit more balance in Q3," Anderson said.

The consumer business was a weak spot during the second quarter, with revenue growing by just 1 percent, said Brian Gladden, Dell's chief financial officer. Revenue was up in the Asia-Pacific and Japan region and in EMEA (Europe, Middle East and Africa), though revenue declined in the Americas region.

"U.S. consumer has been weaker than expected," Gladden said, adding that the market is expected to be weak going into the third quarter.

Pricing on consumer products has been weak over the past few quarters compared with historic trends, Gladden said. The company is moving to higher-margin products for the consumer market while removing lower-margin hardware products from its offerings.

More than 50 percent of Dell's revenue came from outside the U.S., Gladden said. Revenue from Asia-Pacific/Japan and EMEA grew by 17 percent and 1 percent, respectively. Revenue from the Americas was down by 4 percent.

Dell declined to comment on Google's deal to acquire Motorola Mobility this week, other than to say the move may have been intended to build Google's intellectual property portfolio. "Certainly patents play a big role here," Dell said.

To build its data-center technology stack, Dell last month acquired Force10 Networks, which the company hopes to close during the third quarter. Dell projects its third-quarter revenue to be flat relative to the second quarter, the company said.

Copyright © 2011 IDG Communications, Inc.

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