Dell hit by economic slowdown

Dell's revenue and net income dropped in its third quarter as the company tries to cope with a global IT spending slowdown and less demand for its products.

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Dell's revenue and net income dropped in its third quarter as the company tries to cope with a global IT spending slowdown and less demand for its products.

Revenue for the quarter that ended 31 October was $15.16 billion, a 3 per cent drop compared to the third quarter of last year, and short of the $16.2 billion estimated by analysts polled by Thomson Reuters. Earnings per share were $0.37, besting analyst estimates of $0.31.

Net income dropped 5 percent to $727 million, but beat analyst estimates of $616 million.

Dell's consumer business had 10 per cent revenue growth globally, while the commercial business had a revenue decline in the Americas and EMEA (Europe, Middle East and Africa) of 8 per cent and 5 per cent, respectively.

Commercial laptop shipments had flat growth year-over-year, while server shipments dropped by 4 percent. Commercial revenue grew by only 2 per cent in the Asia-Pacific and Japan region.

The global IT environment will continue to be challenging and Dell will try to adapt, the company said.

"Given the choice between profits and growth, we will go for profits," CEO Michael Dell said on a conference call with analysts.

Dell is in the midst of an effort to cut costs by contracting out parts of its business, cutting staff and other means.

In April it said it wanted to save $3 billion by 2011 by reducing its headcount and sourcing cheaper materials and components.

The company has started a temporary hiring freeze, though there will be some hiring to meet specific needs, CFO Brian Gladden said on the call. Dell has already shut down some manufacturing plants and customer service centers around the world this year to reduce costs.

Dell is finding that customers in emerging countries are willing to spend on its products. In the BRIC countries - Brazil, Russia, India and China - revenue increased 20 per cent year-over-year, while unit shipments increased 43 per cent.

Dell said it would take a cautious approach to the coming quarters and act conservatively. Product lines that deliver higher margins will be introduced in favour of lower-margin products, Michael Dell said.

The company has decided to keep its Financial Services unit, which it had put up for sale earlier this year. It is a profitable unit for Dell despite the economic environment, Gladden said.

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