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Thai floods pour cold water on Dell's stiff growth

Enterprise, beam us up!

Dell practically wrote off any chances for meaningful top line growth this year, blaming the uncertain global economy and the disk drive drought crisis.

The Texan tech titan last night reported flat sales for Q3 at $15.4bn (£9.77bn) and warned Wall St to expect more of the same in the final three months of its fiscal 2012.

"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 1 per cent to 5 per cent full year growth," said CFO Brian Gladden.

Analysts estimate a massive shortfall in hard drive supply from this month by some 48 million fewer units, and that Dell would be hardest hit. Yet the firm said that within 24 hours of the deadly Thai flooding disaster in October, it had pulled inventory from its hubs into warehouses to mitigate some impact.

CEO Michael Dell said one of the challenges in forecasting was that the "situation is quite dynamic". He added: "It changes every day. The floodwaters haven't receded yet. Our view of the situation is the challenge in supply is through the first half of next year."

The biz baron said 70 per cent of its sales were direct to customers so it could ascertain if the shipping requirements were urgent.

"We know what customers have an urgent deployment and an urgent need and match up that supply so we don't miss key customer deliverables. That's how we're managing through the current situation. We prioritise our businesses," he said.

Show me the money

On the Q3 revenue stall, Dell said it walked away from some $2bn of unprofitable business but a higher mix of enterprise sales fed through to operating and net profits, up 12 per cent and nine per cent respectively to $1.1bn and $893m.

Server and networking sales grew 13 per cent, Services revenues climbed 10 per cent, Dell's own IP storage grew 23 per cent but total storage sales fell 15 per cent, desktops fell 6 per cent, notebooks dipped 2 per cent as software and peripherals declined 2 per cent.

On a vertical basis, large enterprise was up four per cent to $4.5bn and SME grew one per cent to $3.7bn.

"There continues to be industry-based channel inventory challenges [in SME], particularly in Europe as competitors aggressively move product out of the channel, we did not match the level of pricing aggression in most cases," said Gladden.

The public sector division was hit by "continued weakness" in US Federal and Western Europe with sales down two per cent to $4.4bn, but the consumer unit fell more steeply by 6 per cent to $2.8bn as it exited "low-value segments".

Gladden said: "Client continues to be a place that I don't think we're going to be very aggressive."

What a change from the old days when Dell led the price war against channel-based rivals – now it is trying to elevate itself above the bun fight into an enterprise technology player or "the new Dell" as its CEO succinctly put it. ®

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