Dell Declining

According to IDC, Dell (NASDAQ:DELL), which had annual revenue of $61.1 billion, has lost market share and it has lost its No.2 spot to Acer in the global market. It has, of course, lost the top spot in the U.S. market to HP. Dell’s recently reported third quarter results were also disappointing, missing both earnings and revenue estimates.

Dell currently controls 12.7% of the worldwide market while HP and Acer are ahead with 20.2% and 14%, respectively. In the U.S. market, HP leads with 25.5% while Dell is behind by just 0.5%. Dell said that the timing of the Microsoft Windows 7 launch has hurt its revenue but that it expects the upgrade cycle to increase PC growth to over 10% in 2010. But will it be able to fend off competition from HP and Acer? It would seem that they too will benefit from the same upgrade cycle.

Revenue was up 1% q-o-q and down 15% y-o-y to $12.9 billion versus analyst estimates of $13.2 billion. Net income was down 54% to $337 million or $0.17 per share. Gross margin was 17.3%, down from 18.7% last quarter. Dell ended the quarter with $14 billion in cash and investments, but the completion of its $3.9 billion acquisition of Perot Systems on November 3 will decrease the balance by $4 billion. Q2 coverage is available here.

By business unit, Large Enterprise revenue was down 23% y-o-y and up 4% q-o-q to $3.4 billion. Public revenue was down 7% y-o-y and 3% q-o-q to $3.7 billion. Small and Medium Business revenue was down 19% but up 5% q-o-q to $3 billion. Consumer Business revenue was down 10% y-o-y and 1% q-o-q to $2.8 billion with units up 17% y-o-y. For the third quarter, Perot Systems reported revenue of $629 million, down 12% and gross margin of 19.4%.

By region, the Americas revenue was down 2% q-o-q while EMEA was up 6% q-o-q and Asia-Pacific and Japan was up 7% q-o-q. Revenue from the BRIC countries was up 18% q-o-q and accounted for about 12% of total revenue, while the US accounted for 53% of revenue.

By product, mobility units were up 11% q-o-q and revenue was down 14%. Desktop revenue declined 9% on 10% q-o-q decline in units. Server revenue was down 6% on a 7% decline in units. Worldwide X86 server share was up 180 basis points, and Dell held onto its No.2 spot worldwide and No.1 spot in the US. In the overall server market, it is No.3 worldwide and No.2 in the US. Storage revenue was down 19% but Equal Logic revenue was up 31%. Enhanced Services revenue increased 2% q-o-q to $1.2 billion. Software and Peripherals revenue declined 7%.

Dell has recently announced the creation of a new business unit focused on communications and mobile devices. Dell had earlier announced its Android smartphone, Mini 3 to be launched in China and Brazil, which will act as the testing ground for the company’s smartphone strategy. However, to be successful in the highly competitive U.S. market, Dell will need to make a smartphone acquisition, and either Palm or RIMM would be good targets. In an earlier post, I evaluated such a possibility. Palm with a market cap of about $1.5 billion, is more affordable while RIMM, with a market cap of $34 billion, would be more difficult to acquire.

The stock is currently trading around $13 with market cap of about $26 billion. It had hit a 52-week high of $15.27 on August 24.