Dell Reports Higher Profits as Business Shifts

Dell Inc., one of the biggest manufacturers of computer hardware, is in the midst of a corporate transition: it is aggressively growing its data solutions and computer services business.

But that transition did little to dent its second-quarter earnings, as the Round Rock, Texas-based company reported a solid 63 percent growth in profits, from $545 million in the same quarter last year to $890 million this quarter.

Dell is driving its data management, services, and cloud solutions—the company deems them to be higher-margin and the future of computing. Sales of such products and services grew during the quarter.

“We’re creating efficiency across every step of the IT value chain and ultimately enabling all customers—from home users to large businesses and government organizations—to achieve the outcomes that matter most to them,” said Chairman Michael Dell in a statement.

However, while data and service revenues are growing, its traditional computer sales may be slowing, especially sales to consumers and governmental organizations. Topline revenues of $15.7 billion were only 1 percent higher than the same quarter last year.

Reduced Guidance

Dell also reduced its revenue projections for the rest of 2011.

The company is estimating that revenues will grow between 1 and 5 percent for this year, down from a previous forecast of between 5 to 9 percent. Mainly, the company estimates that consumer and governmental sales may suffer.

Dell Chief Financial Officer Brian Gladden said on a conference call with analysts on Tuesday, Aug. 16 that of particular concern to the company is demand for computers from consumers, who are still saddled by an unforgiving economic environment and high unemployment rates.

Dell attributes the decline to “a more uncertain demand environment,” but said in a statement that it will shift resources away from selling lower-profit margin products to focusing on higher-margin products and services, such as sales to enterprises and computer services and consulting services.

The company’s shift is unsurprising. In recent years it has increased its acquisition of non-core businesses, such as development and consulting company Perot Systems in 2009 and software integration company Boomi in 2010.

Such acquisitions and product and service offerings will better position the firm to compete with the likes of International Business Machines (IBM), Hewlett-Packard Co., and Cisco Systems Inc.

“Dell is leveraging acquisitions to transform from a vendor of high-volume compute products to a provider of enterprise-focused solutions, spearheaded by services,” said Technology Business Research analyst Greg Richardson, according to an eWeek report. EWeek is a leading IT services publication.

“Dell’s aggressive pursuit of inorganic growth is beginning to bear fruit in the form of increased profitability,” said Richardson.