Need for Better Mobile Strategy Grows More Urgent at Dell

The recent Gartner report on the PC market saw worldwide PC shipments fall 8.3% over the year to 87.5 million units. As we saw in yesterday’s Tech Stocks post, HP fell from its leading position to the second spot, with market share declining from 17% to 15.5% as Lenovo’s share grew from 13.1% a year ago to 15.7% during the last quarter. Dell also suffered from Lenovo’s performance improvement. Dell saw its market share drop from 11.2% a year ago to 10.5%. Within the U.S., PC shipments fell 13.8% a year ago 15.3 million units. HP maintained leadership in the U.S. market although its market share declined from 28.9% a year ago to 27% during the last quarter. Dell’s market share slipped marginally from 21.9% to 21.4% last quarter, but it retained its second spot in the U.S. market. Apple is gaining share in the country and now has a 13.6% market share, compared with 12.5% a year ago.

Dell’s Financials
Dell’s (NASDAQ:Dell) Q3 revenues fell 10.5% over the year and 5% over the quarter to $13.7 billion, missing the Street’s target of $13.89 billion. EPS of $0.39 fell 38% over the year and was below the market’s expectations of $0.40.

By segment, revenues from Large Enterprise fell 8% to $4.2 billion driven by increasing price pressure from the company’s customers. Public Revenue of $3.8 billion reported an 11% decline over the year, and SMB revenues fell 1% to $3.3 billion. The depressing PC market conditions also hurt the consumer segment, which saw revenues fall 23% to $2.5 billion.

For the current quarter, Dell expects revenues to fall as much as 13% over the year to $14 billion-$14.4 billion, missing the Street’s target of $14.5 billion. This would be the fourth consecutive quarter for Dell in which revenue decline has become worse.

Dell’s Software Focus
After acquiring Quest Software last quarter, Dell continued to build its enterprise software offerings during the current quarter through the acquisition of infrastructure automation software developer, Gale Technologies. Gale’s offerings help customers turn discrete computing, network, and storage components into integrated optimized applications, virtual desktop infrastructure, and private cloud solutions that are capable of self-service and advanced automation. Their solutions include management, automation, and orchestration platforms for simplifying end-to-end provisioning across infrastructures. Dell is hopeful that through the acquisition, it will continue to offer an improved, cost-effective solution to help accelerate the movement to integrated enterprise solutions. The terms of the deal were not disclosed.

Dell’s stock is trading at $9.94 with a market capitalization of $17.25 billion. It touched a 52-week high of $18.36 in February 2012. The stock fell to a three-and-a-half year low of $8.69 soon after the results were announced.

Analysts attribute disappointing PC sales in the third quarter to the anticipated launch of Windows 8 and the continuing Eurozone crisis. Some analysts expect the market to pick up during the current quarter as all major manufacturers release their Windows 8 versions. Dell itself has launched a Windows 8 line-up which is expected to be a hot buy for the holiday season. But there are also a few others who aren’t as convinced about the impact of the new OS. According to Wedge Partners analyst Brian Blair, Windows 8 devices are not necessarily on a consumer’s holiday shopping list. Dell’s management also believes that Windows 8 will not necessarily spur any significant demand in the PC segment in the next two quarters, especially since corporate customers aren’t rushing to upgrade their machines.

Dell is also lagging significantly in its mobility solutions. In a market where mobile device sales have steadily increased, for Dell revenues from mobile devices fell 26% over the year to $3.5 billion. Add to that the trouble of increased competition by Microsoft, which also entered the OEM market its their own Surface tablet, and one realizes that Dell’s woes are not coming to an end soon. At the risk of sounding repetitive, Dell needs to make big acquisitions. Its shopping list should include companies like Research in Motion, which itself is struggling to keep up with market demand but comes with a strong channel and market share.