Dell Plays Down Significance of iPad Popularity, HP Buying Palm

Dell CEO Michael Dell played down the significance of the iPad’s popularity and rival Hewlett-Packard’s plan to buy Palm, in an earnings call. He also sidestepped a question on whether Dell plans to make an acquisition in the mobile device space. Instead, Dell said, “One of the most immediate opportunities we see with all of the users coming online is the tremendous build-out of the data centers to feed all that data."

Dell is “very focused on our data center custom solutions business and providing the infrastructure to all of the content providers and telcos that are feeding up all that data,” the CEO said. Data suggests the company is “supplying about 19 of the 25 largest websites in the world” and the company continues “to have a significant presence in that tier,” he said. “You're also starting to see us a bit in the device side. We're very much working with Android and Windows Mobile 7 and we see those platforms as … attractive alternatives” to making other moves in the mobile space, he said.

The CEO called the tablet category “pretty interesting,” telling analysts that he believed such “devices are really good for content consumption and they're not so much content creation devices. … They also appear to be devices that create a whole new usage pattern and a whole new demand for data which is a good thing and they don’t necessarily replace any existing device per se.” Some consumers will use tablets instead of another device, he conceded, but “generally speaking, the tablet form factor looks to me like a whole other device and a whole other purchase pattern."

Dell reported improved profit and revenue for Q1 ended April 30. Profit increased to $441 million from $290 million in Q1 last year, while sales increased 21 percent to $14.9 billion. But Dell shares fell about 10 percent Friday, apparently due to the disappointing gross margin result it reported and its conservative forecast. Non-GAAP gross margin increased only slightly from a year ago, to 17.6 percent.

"We had a solid first quarter in an improving global environment and demand has picked up especially with our commercial customers,” who made up about 78 percent of revenue, said Chief Financial Officer Brian Gladden. Dell had “solid unit and revenue growth” in Q1, and “saw very strong demand in the emerging countries around the world,” he said. Consumer business revenue increased 16 percent from Q1 last year to $3.2 billion. The company “saw solid revenue growth in the Americas,” but that was overshadowed by growth in emerging countries, he said. Combined revenue from Brazil, Russia, India and China soared 60 percent in Q1 and represented almost 12 percent of Dell’s total revenue, he said. Revenue growth in those markets were “led by India’s 90-percent growth and Brazil’s 81 percent,” the company said. Russia revenue was up 79 percent, while China revenue grew 44 percent, it said. Mobility revenue grew 18 percent, and desktop sales grew 13 percent. Mobility product unit sales increased 27 percent, while desktop units were up 12 percent, Gladden said.

The company expects to see “seasonal improvements” from its state and local government, consumer and education businesses, Gladden said. But he warned that Q2 and the first part of Q3 “are generally periods where we see slower demand from larger commercial customers in the U.S. and especially Europe.”

Dell also expects “some components to remain in tight supply, with limited deflation for the next couple of quarters and global currencies to remain somewhat volatile, especially the euro,” Gladden said. Supplies on memory have “been a bit of a challenge,” in particular, he said. “I think from our perspective and I think from the market’s perspective what you would hear is that will continue to be a challenge through the next couple of quarters,” he said. But Dell has locked in supply “to the point where we're generally feeling pretty good about our capability to meet our needs,” he said. “On the supply side, I would say that the reality is that there’s going to be continued pricing pressure there and components are not going to be seeing the typical deflation we've seen,” he said. The company didn’t provide a specific revenue and profit forecast for Q2 or the fiscal year.