As Dell Expands Profits Contract

For Dell, global expansion has a steep price tag and it showed up on the company’s bottom line.

The efforts of Dell to rapidly expand globally have caught up with its bottom line.  Dell surged and stormed the technology market in a major effort to recover from its rough experiences in the past years.  The efforts however backfired as Dell reported an astonishing 17 percent drop in its profit margin for the second quarter.  The decline was fueled by overhead expenses on product development and expansion efforts worldwide.

Lower Net Income for Dell

Dell’s net income was recorded at $616 million or 31 cents per share.  The figure showed a decline compared to previous year’s net income of $746 million at 33 cents a share.  Dell’s revenue however went up by 11 percent to $16.43 billion.  The Thomson Financial surveyed financial analysts expected a net income of 36 cents a share on the assumption that revenues would hit $15.95 billion.

Dell’s Chief Finance Officer Brian Gladden said the net earnings were definitely affected by the company’s strategic initiatives.  Dell pushed a major expansion in other areas of business such as global consumer and foreign markets.  Gladden made the assessment on a conference call.

Dell however is making big inroads in these areas.  The company went in the retail market of the United States selling its personal computers in Wal-Mart, Best Buys, and Staples.  Gladden said that 47 percent of Dell’s sales came from international business ventures.

Expansion has an Expensive Price Tag

The fast tracked expansion however has a pricey tag as Dell was forced to defer its revenues in Europe, Africa, and the Middle East.  The company is expected to recognize these markets in the next quarters.  Gladden said the impact of this deferment is equal to two or three cents for the current quarter.  He added that Dell is still finding out the best cost structures for the company.

Other costs also made an impact which includes the $27 million spent on funding the amortization of intangibles purchases.  Another $25 million were also spent on business realignment costs.  All these overhead expenditures reflected one cent earnings per share.  

Because of these, Dell suffered a stock shock as it went down to $2.50 or an almost 10 percent drop in the prices of its stock per share.

Dell reduced its headcount by 8,500 since last year not including those terminated through acquisitions.  Gladden said the move was aimed at cutting down operational expenses by 2011.  

Dell’s notebook sales went up 26 percent but its desktop lines were down by 1.8 percent.  The server unit of Dell also posted a 19 percent growth but lower than expected by company executives.