Dell flees low-end notebooks

Vendor says it will focus its client business on high-value segments following 10 per cent drop in notebook sales

Savage competition in the entry-level notebook space has prompted Dell to focus on growing its client business in high-margin, high-value segments.

The Texan vendor saw notebook sales fall by 10 per cent and overall revenue by four per cent in a fiscal first quarter that fell short of its expectations. Net profit fell 33 per cent to $635m (£404m) on revenue of $14.4bn.

On a conference call - a transcript of which can be found here - Dell chief financial officer Brian Gladden said the firm had seen a more "aggressive competitive environment", particularly in the entry-level and emerging markets.

"We believe some of the tougher competitive environment can be attributed to channel inventory rebuilding, following the hard disk issues of the past two quarters," he said. "In addition, we are seeing more consumer IT spending diverted to alternative mobile computing devices. These dynamics impacted both our revenue and margins for the quarter."

Gladden added: "In the short term, we believe our client business is well positioned on cost, and we will focus our efforts on growth on higher-margin, higher-value segments, with a priority on profit over unit share."

The past five years have seen Dell expand its enterprise business through acquisition and enterprise solutions and services now contribute to 50 per cent of its margin and 31 per cent of revenue.

The company said sales of its Dell-owned IP storage grew at 24 per cent in Q1, servers and networking by two per cent, services by four per cent and security by 31 per cent.

"Our sales execution was not up to our expectations, and we have made changes to improve this as we head into the second quarter," said Gladden. "Additionally, the demand environment was tougher than we planned, and I would specifically highlight weaker demand in markets such as EMEA and parts of Asia, in addition to public markets."