Dell claims it is coping well with HDD crisis
But vendor admits fallout from Thai floods has affected revenue
Dell says its swift response to the hard disk drive (HDD) crisis will enable it to shield its customers from possible shortages until at least January.
However, the IT giant did reveal in its Q3 earnings call that the effects of the Thai floods, combined with the uncertain economic environment, mean it is now trending at the bottom of its revenue outlook for the year.
Analyst Citigroup expects the crisis to lead to a shipment shortfall of 47 million HDDs over the next two quarters.
On the call – a transcript of which can be found here – Jeffrey Clarke, vice chairman of global operations at Dell, claimed the vendor was well positioned to cope.
"With specific reference to the crisis at hand, we have acted, I think, very decisively and promptly. Within 24 hours of being notified of a potential flood situation, we pulled in all inventory from our hubs into Dell, our warehouses in Dell locations," he said.
..."We are in a position where we think we can mitigate the impact to our customers for [Dell's fiscal fourth] quarter."
Enterprise growth
For Q3, Dell's revenue was flat on an annual comparison at $15.4bn (£9.8bn), although its focus on higher-margin activities ensured GAAP operating income rose 17 per cent to $1.1bn. Chief executive Michael Dell (pictured) said he was pleased with the results.
Despite Dell's PC heritage, enterprise solutions and services now account for 46 per cent of the firm's gross margin dollars.
Dell chief financial officer Brian Gladden said: "[The revenue] was below our view heading into the third quarter, but I am pleased with the trade-offs that we made in the quarter. We grew in the right places, specifically in Enterprise Solutions and Services, while continuing to migrate away from lower value-added segments of the client in S&P businesses."
By product segment, Enterprise Solutions and Services revenue grew eight per cent to $4.7bn, or by 13 per cent excluding third-party storage hardware activities. Within that, server and networking rose 13 per cent, storage declined 15 per cent (although Dell-owned IP storage rose 23 per cent) and services rose 10 per cent.
Desktop revenue fell six per cent while notebook sales fell two per cent. Meanwhile, software and peripherals sales fell two per cent to $2.5bn.
Low-margin exodus
Dell was asked on the conference call why the firm had not appeared to make more headway against HP during the quarter – particularly in the PC arena – given the organisational uncertainty its rival faced.
In response, Gladden stressed that Dell is continuing to back away from low-margin activities.
"One of the areas that we will continue to work through is third-party software," he said. "I think that is an area that we have a fair amount of revenue today with relatively unattractive margins, and we will work through that over the next several quarters. I think low- [indiscernible] client continues to be a place that I do not think we are going to be very aggressive. There may be some selected opportunities there where we can see strategic benefits but I think it is going to continue. I am not going to give you a view on when we stop because I think it is going to continue for a while."
By customer segment, large enterprise rose four per cent to $4.5bn, driven by an 11 per cent rise in enterprise solutions and services.
Public sector business sales fell two per cent to $4.4bn, SMB revenue grew by one per cent to $3.7bn and consumer sales fell by six per cent to $2.8bn.
Dell said the fact the floodwaters in Thailand are still receding makes it very difficult to pinpoint the magnitude or duration of shortages. For this reason, it said, this puts the industry and allocation environment at least through Q1.
Gladden said: "Given the uncertain macroeconomic environment and the complexity in working through the hard drive issue, we are trending to the bottom of the range of our revenue outlook of one per cent to five per cent full-year growth."