Servers Still a Bright Spot for Dell Despite Decline in Overall Revenues

by Sean Kerner

Dell execs blame sales execution for the company's missed expectations.

Dell reported first quarter fiscal 2013 revenue late Tuesday that didn't deliver.

For the quarter, revenue was reported at $14.4 billion for a 4 percent year-over-year decline. Net income also declined, coming in at $635 million, which is a 33 percent year-over-year decline.

"There are a few key causes to the shortfall," Brian Gladden, CFO of Dell said during the company's earnings call. "Our sales execution was not up to our expectations, and we've made changes to improve this as we head into the second quarter."

Gladden also noted that Dell has seen weaker demand in markets like EMEA and parts of Asia, in addition to public markets.

Dell ServersWhile Dell overall was down, one bright spot is the server space. For the quarter, Dell's server and networking businesses grew by 2 percent. That growth was tempered by a pause in server purchases ahead of the launch of Dell's next-generation servers. Dell announced its new 12G servers at the end of February ahead of the Intel Xeon E5 launch.

"We exited the quarter with the 12th generation being a little over 25 percent of the server business, so it's off to a strong start." Michael Dell, CEO of Dell, said."I think the benefits of this generation in terms of 10-gig ethernet and all the performance characteristics, [and] the larger memory footprints going into bigger workloads, give us lots of opportunity to grow that."

Dell server performance is particularly noteworthy in contrast to its primary competitors, HP and IBM.

"We would highlight that IBM reported a revenue flat yr/yr growth in its System x (x86) servers for the March quarter," Analyst first Stifel Nicolaus Equity wrote in a research note. "We estimate HP's total enterprise storage and server revenue falling 12.5 percent yr/yr for the April quarter."

Dell's networking business is also growing with PowerConnect revenue up 46 percent year-over-year. Dell is now moving its business to be more of a platform play that will help them grow multiple segments of the business.

"We're kind of changing the sale here from server to a converged sale of server, storage, networking and the software and services that go around that to support it," Dell said.

In addition to the 12G servers, Dell is optimistic that the availability of Windows 8 later this year will prove to be a driver for the consumer side of business.

"We don't think there'll be a massive adoption of Windows 8 by corporations early on," Dell said. "But certainly, with the addition of capacitive touch capability into Windows 8, we think this will be a welcome addition and we'll have a full complement of products at time of launch."

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of the IT Business Edge Network, the network for technology professionals Follow him on Twitter @TechJournalist.


This article was originally published on Wednesday May 23rd 2012
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