Dell feeling iPad pressure after soft notebook sales, earnings miss

Posted:
in iPad edited January 2014
Though it didn't mention the iPad by name, PC maker Dell did say that "alternative mobile computing devices" had an impact on its sales that contributed to poor performance last quarter.

Dell Chief Financial Officer Brian T. Gladden admitted during the company's first-quarter 2013 earnings conference call on Tuesday that its results "were mixed."

"We fell short of our own expectations," he said, according to a transcript by Seeking Alpha. "There were some areas where our execution was not as expected, and there also are some market dynamics that created some headwinds for us."

The company reported a 4 percent drop in revenue to $14.4 billion and profit of 43 cents a share. The average analyst estimate had expected $14.9 billion in revenue and 46 cents a share profit, The New York Times reports.

Dell struggled with its notebook business as it contracted 10 percent over the quarter. Consumer notebook revenue in particular fell 15 percent. Stephen J. Felice, the chief commercial officer for the company, said that the consumer business was Dell's "biggest challenge in the quarter."

Dell Consumer income
Revenues and operating margin for Dell's Consumer segment | Source: Dell


Gladden said "a more aggressive competitive environment" contributed to the decline in notebook sales. He attributed the tougher environment to "channel inventory rebuilding" as a result of constrained hard drive supplies in recent quarters.

"In addition, we're seeing more consumer IT spending diverted to alternative mobile computing devices," he added. The executive didn't elaborate on what exactly the "alternative" devices were, but analysts and pundits were quick to point to Apple's iPad as the most-likely culprit.

Responding to Dell's worse-than-expected quarter and tentative guidance, investment bank Morgan Stanley lowered its fiscal 2013 revenue growth and earnings per share estimates to -3 percent and $1.98, respectively, down from 0.8 percent and $2.10 previously. Analyst Katy Huberty suggested that "tablet cannibalization" could further damage Dell as it has begun to spread to education and business sectors. Huberty predicted last April that, among PC makers, Dell was exposed to "the greatest risk" from the uptake of the iPad.

Apple's new iPad


Evercore also trimmed its earnings estimates for Dell in a note to investors early Wednesday on suspicion that the company will experience continued "PC erosion."

Felice himself hinted that preference for new form factor devices had leaked into sectors other than the consumer market. "We're also seeing some IT spending prioritized to purchase other mobile devices. Now this is mostly a consumer dynamic, but there is clearly some impact in areas of commercial as well," he said.

Dell was optimistic about the release of Microsoft's Windows 8 operating system later this year, but it cautioned that it didn't expect "massive adoption" of the OS by corporations early on. Founder and CEO Michael Dell did, however, promise that the company would have a "full complement of products" at launch.

At the start of this year, Dell promised to enter the tablet market "in a bigger way toward the end of the year." Felice said the company was being "careful" about how it entered and was planning to develop for both Windows 8 and Android.

Dell's admission that the growth in other devices is affecting its notebook business came on the same day as new market research data that highlighted Apple's continued dominance in the "mobile PC" market. NPD revealed on Tuesday its estimate that Apple's mobile PC business, which includes notebooks and the iPad, grew 118 percent year over year. The iPad maker took the top spot among mobile PC makers in the first quarter of 2012 with an estimated 17.2 million units, while Dell came in fifth with shipments of 5.6 million devices.

NPD 1Q12
Worldwide top five mobile PC shipment rankings for Q1 2012. | Source: NPD DisplaySearch


Shares of Dell fell 12 percent in after-hours trading after the news. Dell's quarterly performance prompted comparisons between the changing tide of fortune for both Dell and Apple. Michael Dell famously said in 1997 that he would shut Apple down and "give the money back to the shareholders." Late Apple co-founder Steve Jobs pointed out in 1996 that his rival "wasn't perfect at predicting the future" when Apple's market cap passed Dell's. As of the close of market on Tuesday, Apple's market capitalization was nearly 20 times that of its rival.
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Comments

  • Reply 1 of 44
    diplicationdiplication Posts: 607member
    Don't they mean "smooth notebook sales?"
  • Reply 2 of 44
    sflocalsflocal Posts: 4,627member


    When will the likes of Dell realize that people are fed up with the 90's and 2K's of making cheap junk?  It's not rocket science people.  That's what happens when you don't control the entire experience.



    Shut down Dell and give the money back to the shareholders. </s>

     

  • Reply 3 of 44
    solipsismxsolipsismx Posts: 19,566member
    sflocal wrote: »
    Shut down Dell and give the money back to the shareholders. </s>

    In Michael Dell's defense on the infamous quote, he did phrase it to say what he would do which in his case would have likely been the best course of action had he been at the helm. Luckily for everyone but Apple's competitors someone with better vision and business acumen was running the company.
  • Reply 4 of 44
    dickprinterdickprinter Posts: 1,060member

    Quote:

    Originally Posted by SolipsismX View Post





    In Michael Dell's defense on the infamous quote, he did phrase it to say what he would do which in his case would have likely been the best course of action had he been at the helm. Luckily for everyone but Apple's competitors someone with better vision and business acumen was running reinventing the company.


     


     


    I hope you don't mind my attempt at improving upon your already insightful assertion.

  • Reply 5 of 44
    slurpyslurpy Posts: 5,152member


    I'm shocked at this news. Just shocked.  Wait, not really. 


     


    Remember when everyone was mocking and bashing Apple for missing the 'netbook train'? I do. 

  • Reply 6 of 44

    Quote:

    Originally Posted by Slurpy View Post


    I'm shocked at this news. Just shocked.  Wait, not really. 


     


    Remember when everyone was mocking and bashing Apple for missing the 'netbook train'? I do. 



    I remember. And I remember how cautious everyone was about saying that the iPad could blow away the netbook. Either Steve Jobs had the biggest set of balls in the universe, or he really saw the future clearer than anyone else in the industry.

  • Reply 7 of 44
    maccherrymaccherry Posts: 924member


    Think about it, the average pc user gets an iPad and cant surf, watch videos, twitter, face book etc without any freaking viruses whatsoever. The experience is damn near seamless. So why the hell would they want a pc after that?


    Apple is making rain on these fools!!!! Dell doesn't even have a solution but to get their hands on off the shelf swag and stamp their name on it.

  • Reply 8 of 44
    rcoleman1rcoleman1 Posts: 153member


    For those who don't already know...Dell = crap.

  • Reply 9 of 44
    nasseraenasserae Posts: 3,157member


    I thought cheap crap are awesome!

  • Reply 10 of 44
    deanbardeanbar Posts: 106member

    Quote:

    Originally Posted by Slurpy View Post


    I'm shocked at this news. Just shocked.  Wait, not really. 


     


    Remember when everyone was mocking and bashing Apple for missing the 'netbook train'? I do. 



    I remember in '96 when I thought long and hard whether to upgrade all our Mac's in my Company, as everyone was telling me Apple no longer had a future. Glad I ignored them! image

  • Reply 11 of 44
    drdoppiodrdoppio Posts: 1,132member


    Dell's biggest mistake would be failing to transition to mobile consumer solutions. They can limit the struggling PC business to the enterprise and focus on phones and tablets for the consumer market. It is unfortunate that Dell threw in the towel way too early regarding phones, as it was a pioneer with large screen phones, a direction in which every major smart phone manufacturer (including Apple) is moving now -- two years later. Merely incremental updates could have earned them a following and carved a niche in the market. Tablets are another opportunity for Dell, despite their disappointing attempt with Android and the Streak 7. They can use this experience to learn and try again with both Windows and Android -- why not even on the same hardware.


     


    Michael Dell, PM me if you have questions.


     


    Sent from my Dell Streak.

  • Reply 12 of 44
    hodarhodar Posts: 271member


    Dell's failure has been one of innovation.  They buy Asus/Foxconn/Intel motherboards, put them in a piece of plastic/metal and stick the Dell badge on the front - just like everyone else.


     


    But wait, after installing a nice clean Windows install - they then load you down with tons of crapware with no possible way to opt out of the crapware.  So, you unpack your shiny new Dell, then spend the next couple hours uninstalling the crapware.  Here is where the fun begins.  Say that something goes horribly wrong with the uninstall - you have to re-image and Dell gives you the "extra touch" of support and re-loads the crap ware.  Gee, Thanks a lot Mikey.


     


    Then, we have the comparison from the way business was done in the 1990's and today.  In the 1990's the few computer stores that were around  had 3 flavors.  Low, mid and high - no customization.  Dell solved this issue.  But, that issue simply doesn't exist today.


     


    Today, you buy a new Dell.  You pay today, and in 2 weeks it will arrive at  your door.  But, let's pretend the mailman opted to drop it down a flight of stairs - through no fault of your own, you open the box to find something broken.  You call Dell - speak for a couple hours with a charming person in India and Dell agrees to ship you another Dell computer .... a refurbished computer despite the fact that you paid for a new one.  Sure, it's the same model, but it's not a new one.  The tranaction isn't complete until Dell receives your old PC a few days later.  Now, you delete the crapware, successfully, load up your software and start working.  After a couple of days of less than impressive performance, you decide that you could do better at Costco - so you call Dell to say that you simply aren't satisfied.  You explain that the performance is less than you had anticipated on your set of applications - and Dell tells you "Aww, that's too bad - your warranty has expired".  You try to explain that the first 3 weeks of your warranty were waiting for your PC to arrive (broken) and then dealing with additional delays for your "refurb".  Too bad ... eat sh*t.


     


    Or, you could have walked into Walmart, come back a month later and walked back out with your cash.

  • Reply 13 of 44
    jragostajragosta Posts: 10,473member
    hodar wrote: »
    Dell's failure has been one of innovation.  They buy Asus/Foxconn/Intel motherboards, put them in a piece of plastic/metal and stick the Dell badge on the front - just like everyone else.

    But wait, after installing a nice clean Windows install - they then load you down with tons of crapware with no possible way to opt out of the crapware.  So, you unpack your shiny new Dell, then spend the next couple hours uninstalling the crapware.  Here is where the fun begins.  Say that something goes horribly wrong with the uninstall - you have to re-image and Dell gives you the "extra touch" of support and re-loads the crap ware.  Gee, Thanks a lot Mikey.

    Then, we have the comparison from the way business was done in the 1990's and today.  In the 1990's the few computer stores that were around  had 3 flavors.  Low, mid and high - no customization.  Dell solved this issue.  But, that issue simply doesn't exist today.

    Today, you buy a new Dell.  You pay today, and in 2 weeks it will arrive at  your door.  But, let's pretend the mailman opted to drop it down a flight of stairs - through no fault of your own, you open the box to find something broken.  You call Dell - speak for a couple hours with a charming person in India and Dell agrees to ship you another Dell computer .... a refurbished computer despite the fact that you paid for a new one.  Sure, it's the same model, but it's not a new one.  The tranaction isn't complete until Dell receives your old PC a few days later.  Now, you delete the crapware, successfully, load up your software and start working.  After a couple of days of less than impressive performance, you decide that you could do better at Costco - so you call Dell to say that you simply aren't satisfied.  You explain that the performance is less than you had anticipated on your set of applications - and Dell tells you "Aww, that's too bad - your warranty has expired".  You try to explain that the first 3 weeks of your warranty were waiting for your PC to arrive (broken) and then dealing with additional delays for your "refurb".  Too bad ... eat sh*t.

    Or, you could have walked into Walmart, come back a month later and walked back out with your cash.

    Dell has failed in execution of its own business plan.

    When Dell started out, they offered stylish (at least for a PC) computers that were delivered far faster than anyone else and were very price competitive because of incredible logistics. Most of the time, Dell was paid by its customers before they had to pay their suppliers, so Dell did not have a need for a lot of operating cash or inventory. Customer service was exceptional and there were all sorts of stories about the wonderful things Dell did with customer service. Their system was designed with extremely low overhead.

    There's room in the industry for companies with a lot of different core business models. For example, one company like Apple could excel at design and ease of use. Another could excel at making extremely robust computers for difficult environments. Another might be the trendy fashion model of the industry. Another could excel at making generic systems with low overhead. And so on.

    Dell's problem was not so much that their business model was bad but that the execution was muddled. They forgot what their model was. Instead of focusing on great customer service, they did some of the things you mentioned. Instead of focusing on supply chain and logistics, they branched out and tried to make innovative products. But without the DNA to do that, it was doomed to failure - and conflicted with their model. Dell stopped being a great company when the decided to try to be everything to every body. The truly great companies have a business model and then stick to it relentlessly (until they decide to change the model - and then they stick to the new model relentlessly). No one is great at all things and smart companies know when to say "we're going to pass up that market segment because it's not something we're good at". Dell never learned that.
  • Reply 14 of 44
    quadra 610quadra 610 Posts: 6,743member


    All Dell is is a box-maker running a whored-out OS. There's nothing impressive about that to begin with. On top of that their other devices have all failed in the market. 

  • Reply 15 of 44
    jazzyjjazzyj Posts: 10member


    Note to Editor: I believe Apple passed Dell's market cap in 2006, not 1996.

  • Reply 16 of 44
    ranreloadedranreloaded Posts: 397member
    Karma is a b**tch! :D
  • Reply 17 of 44
    blastdoorblastdoor Posts: 1,922member

    Quote:

    Originally Posted by diplication View Post



    Don't they mean "smooth notebook sales?"


    ha... good one :)

  • Reply 18 of 44
    blastdoorblastdoor Posts: 1,922member


    Dell's success was based on being an early adopter of a new distribution model (mail order over the internet) and then expanding scale. Now their distribution system is nothing unique and they no longer have the scale advantage they once had. Worse still, they are starting to contract. Contraction will just further hurt their already razor thin margins. It would not be hard for Dell to enter into a death spiral from where they are right now. 

  • Reply 19 of 44
    ahmlcoahmlco Posts: 432member

    Quote:

    Originally Posted by jragosta View Post



    Instead of focusing on supply chain and logistics, they branched out and tried to make innovative products. 


     


    Actually, I think they did focus on supply chain and logistics. Unfortunately, their focus lay in getting the cheapest possible prices on the cheapest possible parts. 


     


    I'm mostly a Mac guy, but about 10 years ago I was on a job that required that I have a PC, so I bought a Dell notebook. It was, without question, the cheapest piece of **** I've ever owned. The plastic case gave way every single time you put your hands on the keyboard. Worse, it creaked audibly. 


     


    I love well made tools, and I'm here to tell you that I HATED that computer.


     


    Apple has a heavy focus on their supply chain too, but their focus usually lies in getting the best prices possible, on the best parts available. 

  • Reply 20 of 44
    Sell it all and return the $ to the shareholders. Perfect and priceless. "hey dude your getting a check I the mail !"
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