Dell sees incoming PC refresh

Dell's CEO claims demand for PCs is starting to trickle down from enterprise customers again but the launch of Windows 7 has nothing to do with it.

Dell's CEO claims demand for PCs is starting to trickle down from enterprise customers again but the launch of Windows 7 has nothing to do with it.

The Texan behemoth, which last night posted fiscal third quarter 2010 results, re-iterated its forecast of a massive client refresh in the large business space which cannot come soon enough for a company that is heavily reliant on the commercial sector.

"I can't remember a time when a very high percentage of [corporate customers] skipped an entire OS so what we remind them - and they know this - is that Windows XP is eight years old so I think there will be a pretty powerful cycle," said Michael Dell.

Around half of its SME boxes shipped this quarter were pre-loaded with Microsoft's recently launched OS he said but "the momentum we are seeing in the enterprise around clients has nothing to do with Windows 7," Dell added

"IT managers really know they cannot extend the life of those client assets forever," he said.

Some enterprise customers were seeding Windows 7 units and the pipeline, assisted by virtualisation, was building for a refresh that was expected to last into mid-2011.

The recession has been tough for Dell which has a business largely based on hardware - until the recent acquisition of Perot helped bolster services revenues - however things appear to be improving quarter-on-quarter.

Revenues for the three months ended September fell 15% year-on-year to $12.9bn, up 1% sequentially. Profits dived 54% on last year to $337m and down 29% on last quarter, hit by rising component costs and hyper aggressive pricing competition.

The tight control of costs continued as Dell pushed down operating expenses 10% to $1.7bn, a reduction of $1.6bn since the FY08 baseline. It plans to shed a total of $4bn by the end of fiscal 2011.

In the last year the build-to-order specialist has started to shift production to contract manufacturers, and they now account for 43% of volumes. The company said this trend would continue to build over time.

At the start of this calendar year Dell split into four operating segments; sales in the Enterprise and Public units fell 23% and 7% on last year to $3.4bn and $3.7bn respectively but went up sequentially 4% and 3%.

Revenues in the SME segment fell 19% on calendar Q3 2009 to $3bn, but rose 5% on last quarter while sales in the Consumer business fell 10% year-on-year to $2.8bn, down 1% sequentially.

Perot Systems' revenues were $629m, down 12% year-on-year but flat sequentially; the acquisition closed at the start of the month so consolidated reporting with the enhanced services category will not start until Q4.

Sales at all product divisions' fell on an annual comparison but mobility, servers, enhanced services and software and peripherals climbed sequentially.

The vendor expects sequential improvements to Q4 revenues in both the consumer and commercial divisions though CFO Brian Gladden warned of "some tightness and component cost pressure, particularly memory and LCDs."

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