Dell, Best Buy outlook darkens
By Scott Moritz
If Dell’s (DELL) view is right, the tech spending hiatus that started in July isn’t ending anytime soon.
Less than a week after Dell warned that a U.S. slowdown in information technology spending was spreading to Europe and Asia, the No.2 computer maker now says the slump is getting worse.
“We saw some weakness in July, and August is always slow,” Dell CFO Brian Gladden said at a Bank of America investor conference Tuesday. “By the second week in September, we started getting the sense that this isn’t coming back the way we expected it to,” Gladden said. Earlier Tuesday, the company issued a statement that it was “seeing further softening of demand in global end-user demand in the current quarter.”
Dell shares tumbled 10% to a new seven-year low after the company gave its latest grim assessment of the business climate. Outlining the areas of weakness, Gladden pointed out that in the U.S., spending by small and medium-sized businesses is down, and the financial sector, currently in a credit crisis swoon, was a bit challenging. “There’s not a lot of IT spending going on in the financial businesses,” Gladden said.
Overall big business spending, which accounts for about 80% of Dell’s revenue, was “mixed but weaker than we expected in the aggregate,” Gladden said.
Internationally, the U.K. remained a tough environment, Germany had been solid but turned weak in recent weeks and sales in China, which had been slow during the Olympics, had not snapped back as expected, said Gladden.
Tech investors have taken some confidence from the relative good health and solid spending in growing markets outside the U.S. And Wall Street’s deepening woes, while significant, had not had a dramatic effect on the larger IT market. At least not yet.
But as Dell tells it, cash-hoarding corporate customers aren’t exactly ignoring the drama of Lehman Brothers’ bankruptcy protection and AIG’s financing crisis.
Tuesday’s news on the consumer side, where Dell has made efforts to be a bigger player, wasn’t very encouraging either.
Best Buy (BBY), which has been selling Dell computers since last December, blamed its disappointing earnings Tuesday on higher costs and a dip in consumer spending as fuel and food prices rise. “We have some work to do in terms of managing our expenses amid a challenging macro economic environment,” Best Buy CEO Brad Anderson said in a press release.
Dell’s shift to a retail strategy isn’t well-timed. Since founder Michael Dell’s return to the top job in early 2007, Dell has attempted to shift from its online, made-to-order PC-maker approach to more of a retail PC supplier. As part of the effort, the company says it has already eliminated two factories, including one in Austin, Tex.
Dell is looking to cut more costs and has been shopping its manufacturing plants around as part of an attempt to move more of its manufacturing to partners. The company is about one year into a three-year cost-cutting plan and is expected to have reached its target of eliminating 8,900 employees by the end of this quarter.
Asked if the company was considering a quicker move to bring down expenses, Gladden said: “We are taking a fresh look at all those costs given the environment.”
The news comes a day after PC rival Hewlett Packard announced that it would cut 24,600 people, or 7%, of its combined EDS and HP workforce. Nearly half of those workers targeted are in the United States. HP plans to replace some of those workers with employees in other countries as part of its globalization plan.
Larry, nice of you to step to the plate regarding Dell — but your comment on call centers correctly identifies SALES centers as being in the US. Sure, THERE, Dell doesn’t want misunderstandings; but try to get American-based tech support? Hardly. Plus, for those (obviously, most of the folks reading this article) who have technical knowledge, starting every tech call with idiot newbie questions and then refusing to adapt to match the expertise of the end user/customer? I have spent HOURS (literally hours) with Dell just trying to get someone competent/knowledgeable enough to handle my specific question. That’s bad business, no matter how you put it.
lots of uninformed posts on here. ALL of Dell’s sales call centers are in the US.
NO shipping at dell costs $40. I smell jealous BS. (its $8, $25, $50)
Comparing Apple and Dell doesnt make a whole lot of sense quite yet. Q2 revenue, Dell 16.4 billion vs Apple’s 7.5 billion. they arent on the same level
i own 2 dell laptops im shopping for a 3rd lap top now way in this world am i going to buy a dell. im done dealing with non enlish customers service reps.and best buy customer service is also a joke
I agree with most of the above comments, terrible customer service, poor english skills. I have a Dell desktop and one Dell laptop, plus 2
others laptops, Toshiba and Fujitsu. Both Dell crashed a couple of times, major problems to get them fixed, hours on the phone…etc… Will we buy anew Dell, certainly not!
I wouldn’t buy a Friggin Dell if they were the only Manufacturer. Lousy product and even worse customer service. I hope Michael Dell loses his shirt.
Dell is a bane to technological innovation, and if (when) they go under it will be one of the happiest days of my life.
OH REALLY now??
I spoke with DELL yesterday. I need a new home computer for graphics and publications work, plus the usual home use stuff.
They were $200+ more than their competitor (HP), and I asked if they would kick-in shipping for free instead of also charging me $40 for it.
That was all I needed to do the deal.
Their response?
“OH now, if I go to my Manager and ask him for free shipping for you, he will be very upset with me. I can’t do that.” (Hmmm, sure sounds like the old “Used Car Sales Manager” line!).
So DELL lets $40 stand in the way of a new sale to an EXISTING customer with 3 other DELL machines.
DELL continues to forget: It’s not about finding NEW customers, it’s all about KEEPING the long-time customers you have.
Cya DELL – Don’t let the door hit ya where the Good Lord split ya!
Unreal, Mr. Dell needs to re-examine his sales organization.
Dell would do much more business selling extended warranties, etc., to American customers if the sales people were Americans, instead of Indians with unintelligable accents. They can’t expect Americans to buy products from companies who keep outsourcing American jobs.
Serves you right Dell, your getting exactly what you deserve! Your pc’s are junk, you outsource your Call center to India with poor english skills, and your greedy financing at over 20% interest rates is why your having problems. Now you have to sell your manufacturing plants in the usa because your so greedy to let the malaysians build them instead of having american workers interests in mind. Dude’s got a Gateway NOW
Don’t know if this can be blamed soley on the economy…
I would call this the Vista aftermath… Not many people are buying computers–I think largely because of Vista.
When Microsoft prematurely discontinued XP and started cramming Vista down people’s throat, most everyone and every business I know responding by simply and abruptly halting all new PC purchases.
Dell, HP, going way down is just a ripple effect.
It’s not just the economy–Mac sales, and profits are up, way up.
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All one needs to know is that when my three Dell PCs crash (and they all have)my backup is my ten year Gateway Desktop. Each PC has on at least one occasion cost me about three days to get it (Dell warranty covered)fixed and working and another several days to restore my files from Dell’s Data Safe off-line back up.
This is no way to run a business especially when there are alternatives.