Business

Dell's mobility division not gaining ground

Charles Arthur

Dell is looking like the sick man of the PC business, which is not looking too healthy itself.

Dell CEO Michael Dell delivers a keynote address during the 2010 Oracle Open World conference. (AFP)

In the three months to the start of November, Dell's revenues fell by 11% year on year to $13.7-billion and its operating profit by 48% to $589-million. It warned that the "challenging global macroeconomic environment" will continue in this quarter, which runs to the end of January.

Dell executives were quick to blame the looming "fiscal cliff" in the United States, which they said was stopping big businesses from spending, but that does not explain falling revenues in almost every other country and sector.

Once the top PC maker, Dell has been supplanted by HP and China's Lenovo in numbers of PCs shipped. More worrying is that at its "mobility" division, which should be well positioned to take advantage of the growth in smartphones, tablets and laptops, revenues fell by 26% to $3.5-billion.

Rather than growing as a proportion of Dell's business, the mobility segment fell, from 31% a year before to 25%, whereas its desktop PC business grew from 22% to 23% – the exact reverse of the broader picture in the computer market, in which smartphones and tablets are the fastest-growing category and the traditional PC business is dwindling.

In September last year, the research group Gartner forecast 11% growth for 2012. It is now clear, after an 8% shrinkage in the third quarter, that the overall PC market will shrink this year by about 3%, despite the launch last month of Microsoft's new Windows 8 software.

Threat to Dell
Dell's consumer business fared badly too: revenues shrank by 12% to $2.46-billion, leading to an operating loss of $65-million, as more people began using smartphones or tablets made by rivals. Though Dell has dabbled in the Android smartphone and Windows tablet market, its offerings there have made no significant impact, according to Gartner and another research group, IDC.

The corrosion is most visible in sales of hardware, which dropped by 14% year on year to $10.7-billion, whereas software and services remained almost static at $3-billion. The weakness is reflected in Dell's share price, which is down 40% since the start of the year. Apple's price has also fallen, by 28% from its September peak, but for the year overall it is more than 25% up.

The threat to Dell comes not just from other PC, smartphone and tablet makers, such as Samsung and Apple. Even the company that helped it succeed, Microsoft, is now a rival in the hybrid tablet/laptop market with its Surface and Surface Pro machines, launched in October.

"The threat [from the Surface] right now is minimal, but that's only because the unit number is small," Richard Shim, an analyst at market research company NPD DisplaySearch, told Bloomberg. "But when you look at the potential for it to disrupt partners, it's pretty big."

And Dell is being disrupted. Despite not competing in the "low-value" PC market, it has missed out in the shift in consumer spending through tablets, according to Steve Felice, chief commercial officer. But he was "encouraged" by customer interest in touch-enabled PCs running Windows 8. The company forecasts a rise of 5% in revenues this quarter – "generally consistent with what we typically see in terms of a seasonal pick-up" – but saw falling revenues even in markets it had thought of as potential growth areas, including China (down 7%), Brazil (13%), Russia (8%) and India, where revenues collapsed by 29%. Nor were revenues strong in its traditional markets: revenues for North and South America were down 9% and Europe/Middle East/Africa dropped by 15%.

Its struggles come at a time when consumers are one of the few engines of growth in the PC market, which has dipped as businesses hold back from upgrading machines ahead of Windows 8 and amid concerns about the fiscal cliff. – © Guardian News & Media 2012

Topics In This Section

Comments

blog comments powered by Disqus