Economic Slowdown Taking Toll on Tech

Ars Technica reports: PC makers around the world are feeling the sting of a tougher economy and lowered spending on IT, and Dell is no exception. The Round Rock, Texas-based company issued a statement Tuesday saying that it is "seeing further softening of global end-user demand in the current quarter." This news comes just two weeks after Dell reported revenue of $16.4 billion for the second quarter and forecast strong demand through the end of the year, despite lower-than-expected earnings-per-share and a drop in the company's gross margins.


Dell, like many computer manufacturers, has been talking up its netbook lineup lately. Many OEMs have pinned high hopes on the diminutive systems, betting that their low retail price and small physical footprint will entice buyers through what might be a relatively down Q3 and Q4, but Dell may not have as much of a margin as some. A report from DigiTimes claims that a lower-than-expected supply of in-mold roller (IMR)-treated chassis will delay the delivery of Dell's new Inspiron Mini 9 netbook. Dell had originally planned to ship 1 million laptop chassis this year, but the delay could limit the company to just 700,000 units.


On September 1, we reported that while Dell had beat revenue projections from Wall Street, its earnings per share dropped. The drop in earnings per share on increased income is generally considered to have been caused by a combination of price cuts and increased competition at the new price points. Up to now, such price adjustments have been successful at keeping the tech industry from slipping; Dell's statement today is the first evidence that such trimming may not be enough to keep the market on an even keel.


Dell isn't the only firm having difficulty meeting the street's expectations. Massive technology distributor Ingram Micro Inc. released a statement Tuesday revising its financial outlook for the quarter ending on September 27, 2008. Ingram reports that it expects revenues to range from $8.3 billion to $8.6 billion for the quarter. Ingram maintains that it is reducing costs as quickly as possible and expects its current restructuring program to create annual savings of $18 million to $24 million starting in 2009.


"It's now clear that this economic softness is continuing into September, which is exerting greater pressure on operating margins," Ingram CEO Gregory M. Spierkel said in a statement. "In Europe, we are not seeing the typical September bounce-back from the summer holidays. North America seemed to be relatively stable in the summer months, but we're experiencing broad-based softness in September."


Even retail stalwart Best Buy is missing earnings projections for the quarter. Best Buy reports that it had net earnings of 48¢ per diluted share for the quarter ending August 30, 2008. Diluted earnings per share in second fiscal quarter of 2007 were 55¢ per share and analysts expected Best Buy to post earnings of 57¢ per share during for the quarter.


Best Buy sought to spin the missed earning projections by touting other highlights from the quarter, reporting that online business grew by 32 percent and that domestic market share increased by 1.6 percentage points. Best Buy also maintains that customer satisfaction is at an all-time high and that employee turnover has decreased 19 percentage points. Missed earnings haven't stopped Best Buy's expansion program; it completed the roll out of its Best Buy Mobile Experience to all existing US stores during the quarter. Best Buy also announced that it intends to buy floundering music store Napster.