Dell echoes the optimistic sentiment of other Silicon Valley giants—in recent weeks, it seems that the technology sector may be a leading indicator that the United States is out of a recession.
The company reported net profit of 28 cents a share, better than many had expected. The results are a sure sign that CEO Michael Dell’s cost cutting efforts (he aims to save $4 billion per year) are benefitting the company’s bottom line.
“The best path for Dell remains one focused on profitable growth, lower costs and smart use of working capital,” CFO Brian Gladden said in a statement.
Dell saw revenues of $3.8 billion from consumers during the second quarter, a 20 percent increase from the first quarter of 2009. Large enterprise spending—the bread and butter of Dell’s business—saw modest gains of 3 percent as companies continue to spend conservatively in light of the U.S. recession.
But Dell senses that recovery is just around the corner. The company expects “seasonal demand improvements” in both consumer and business/governmental spending in the second half of 2009, with Enterprise IT spending ramping up significantly in 2010, the company said.
On a conference call with analysts to discuss the financial results, Gladden said, “We believe that a refresh cycle in commercial accounts will be a calendar 2010 story. We remain confident that the significant majority of commercial customers are deferring purchases and will accelerate IT spending to take advantage of technology driven productivity improvements.”
Dell is banking on major technology releases in the third quarter of 2009—Microsoft is set to unveil the next-generation operating system, Windows 7, and Intel Corp. is set to release a slew of new processors. Many major enterprises, having skipped over Windows Vista, are expected to refresh their technologies starting with Windows 7.
“We do know that after a certain period of time, people will replace their machines and there’s a large install base,” said CEO Michael Dell on the call, referring to major corporations still running eight-year old Windows XP.
Moody’s Investors Service, a leading credit rating and market research firm, agrees. “We think corporate IT spending, which has been very weak since the fourth quarter of 2008, will slowly improve as companies evaluate their aging IT infrastructures and the macroeconomic environment steadies,” said Moody’s Senior Vice President Richard Lane.
Moody’s expects global IT spending to stabilize in the second half of 2009 and rise a modest two percent in 2010. Consumer sales increased nine percent overall in the sector, driven by demand for netbooks and lower-priced laptops.
“I would encourage you to … go to dell.com, buy a modern PC, put Windows 7 on it, put Office 2010 on it; you will love your PC again,” CEO Michael Dell said on the call.
