Round Rock, Texas — Aggressive discounting of consumer PCs as well as weakness in orders placed by the U.S. government put a damper on fiscal second-quarter revenue growth at Dell, which still climbed 15 percent, hitting $13.4 billion, up from a year-ago $11.7 billion, but did not reach expectations commonly held in the marketplace.
The revenue shortfall, about $300 million according to analyst forecasts, resulted from greater movement of low-end desktop and laptop models, compared with slower sales of higher margin products. Dell also said it was disappointed with its quarterly revenue gains.
Despite the revenue disappointment, Dell net income increased 28 percent in the three months, ended July 29, reaching $1 billion, compared with $799 million in the same quarter last year. Gross margin rose to 18.6 percent in the three months, up from 18.2 percent year-on-year, while expenses increased to 9 percent in the quarter, compared with a year-earlier 8.6 percent. Average total revenue per product, however, dropped to $1,480 in the second quarter, down from $1,610 the previous year.
At the same time, Dell recorded what it called industry-record shipments of 9.1 million computer systems in the second quarter, which included 2.7 million in mobility products, namely laptops. The company also reported record revenue of more than $2 billion for software and peripherals, which includes printers and displays. These gains came about in a quarter shadowed by the competitive pricing environment, said Dell.
“Our teams performed well in a dynamic market,” said Kevin Rollins, CEO. “Our growth in Q2 was characterized by share increases in every region.”
Second-quarter sales in the laptop segment rose to $3.4 billion, a 20 percent year-over-year increase from the $2.9 billion reported in 2004. Sales of desktop PCs rose 2 percent, hitting $5.1 billion in the three months, compared with $5 billion in the same period the prior year. Second quarter software and peripherals sales of $2 billion was a 35 percent jump over the $1.5 billion taken down a year ago.
Both the mobility and software/peripherals segments gained in percentage of total net revenue during the second quarter, with mobility rising to a 26 percent share, from 25 percent year-on-year, and software/peripherals notching a 15 percent share, up from 13 percent last year. Desktop PCs, still by far Dell’s largest product category, held a 37 percent share of total net revenue in the second quarter, but were down from 42 percent in the same three months in 2004.
Dell continued to benefit from increasing revenue garnered outside the United States, which accounted for 39 percent of the company total in the second quarter and grew 24 percent year-over-year.
Excluding the United States, Americas region revenue increased 34 percent year-on-year, with a jump in mobility product shipments driven by notebook growth of 67 percent year-over-year. Printer shipments were up 117 percent in the second quarter, compared with the same three months last year.
For the six months, Dell revenue rose 15 percent, reaching $26.8 billion from a year-ago $23.2 billion. Net income increased 28 percent, to nearly $2 billion, compared with $1.5 billion in the first half of 2004.