Dell warns of component tighness as corporate refresh begins

The industry has finally entered the early stages of the long awaited corporate refresh cycle according to Dell, but it's not just PCs that are being upgraded.

The industry has finally entered the early stages of the long awaited corporate refresh cycle according to Dell, but its not just PCs that are being upgraded.

The Texan tech monster has been bludgeoned by the economic downturn given its relatively weak standing in the consumer markets and has been waiting for the past two years for the commercial market to return to growth.

In results for the fiscal first quarter 2011 filed last night, Dell sales grew 21% year-on-year to $14.8bn but revenues remained flat sequentially as profits climbed 7% to $584m.

"[We are] at the front end of a powerful refresh in the corporate and public sector client business," said Michael Dell, CEO.

He estimated that less than 5% of large global customers had migrated to Windows 7 or Office 2010 and pointed out the installed base was also using the opportunity to update other ageing technologies.

"We are also seeing a server and storage refresh rates accelerate as customers virtualise their data centres and transition to the latest technology," Dell added.

The quarter threw up some strong year-on-year sales growth comparisons with servers, storage, services, S&P, and PCs all up on the same period in fiscal 2010 but only desktops managed a sequential rise.

The Large Enterprise segment grew 25% on last year to $4.2bn but just 1% on last quarter while sales in Public grew 22% to $3.9bn but only 1% on Q4 fiscal 2010.

The SMB division grew 19% to $3.5bn and up 6% sequentially as Consumer revenues rose 16% on a year ago to $3.2bn but declined 8% on the seasonally stronger Christmas period.

The refresh is expected to continue for several quarters, maintaining the pressure on component manufacturers that are chasing demand and keep average sales prices stable.

"Components continue to be relatively tight, memory has become a bit of a challenge and that will continue to be a challenge for the next couple of quarters," said Dell CFO Brian Gladden.

"The reality is that there will be continued pricing pressure, components will not be seeing the typical deflation that we've seen," he added.

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