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Thursday, 16 August, 2001, 21:38 GMT 22:38 UK
Profits slump at tech giants
Dell PC
The economic slowdown has weakened demand for PCs
Technology giants Dell and Hewlett-Packard, hit by growing competition in computer markets, have reported sharply lower earnings.

Profits at Dell, the world's top-ranking personal computer maker, slumped 28% to $433m in the May-to-July quarter, compared with a year before.

And profits at Hewlett-Packard plummeted 89%, year on year, to $111m.

Both companies emphasised the difficulties in gaining profits from stagnant computer markets, with Dell reporting "intense price competition".

While Hewlett-Packard forecast some revenue growth in the current quarter, it credited the improvement to seasonal factors rather than hopes of an underlying market recovery.

Market reaction

The figures, released after the close of US stock markets, have so far received a mixed response from investors, who see them as a key indicator of the health of global tech giants.

In after hours trading, Dell shares slid 22 cents to $25.16, while Hewlett-Packard stock rose 47 cents to $24.60.

Dell's results, equivalent to 16 cents a shares, were in line with Wall Street forecasts, while Hewlett-Packard's underlying 5 cent-a-share figure beat expectations by one cent.

Lower margins

Dell, which has led the price war among computer makers, said sales were, at $7.61bn, roughly flat.

But profits were hit by a cut in margins as the Texas-based firm kept the lid on computer prices, ensuring, for instance, that a sharp drop in component costs was rapidly passed to suppliers.

Dell, which in May revealed it would cut 4,000 jobs this year, said its operating expenses were, at 10.3% of revenue, at the lowest level in the company's history.

Including $742m costs associated with the lay-offs, the firm made a loss of $101m during the quarter.

Inkjet slump

Hewlett-Packard, which last month revealed plans to axe 6,000 jobs, touted its aim of creating "market-leading cost structures".

Efforts to control expenses have helped the firm offset a 14% decline in sales to $10.1bn, led by a decline of one fifth in revenue from consumer markets.

"We are managing through what is clearly a significant global economic downturn - and our results reflect this tough environment," chairman Carly Fiorina said.

Sales of computer printers proved especially weak, with revenue from inkjet models slumping by almost one third from a year before.

But the firm's notebook computers rose 5% to gain a number two position in the global market, and sales of digital cameras more than quadrupled.

And the firm revealed a surge of two thirds in sales of home PCs in Europe.

Far East gains

Dell too reported strong sales in Germany, taking its ranking in the country from sixth to third.

But the firm took greatest satisfaction from its performance in the "strategically important" markets of China, where sales rose 31%, and Japan, where growth hit 19%.

Shipments overall rose by almost 20% as Dell focused on reducing warehouse stocks and gaining a bigger slice of stagnant markets.

"We increased shipments strongly in a down market... gained more than two points of overall market share and turned in solid, stable operating results," chairman Michael Dell said.

"We are positioning ourselves well for improvement in industry demand. History shows that when Dell wins new customers, they typically stay with us."

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Paul Bell, Dell CEO for Europe, ME and Africa
"We fully believe that the IT industry long term has tremendous prospects"
See also:

03 Aug 01 | Business
Tough times for PC firms
20 Jul 01 | Business
Global PC sales slump
20 Apr 01 | Business
Dell becomes world's top PC maker
18 Apr 01 | Business
Hewlett Packard cuts 3,000
08 Apr 01 | Business
Dell admits hiring too many staff
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