Dell expects disk drive shortage to hurt revenue

Dell is likely to be hampered for a couple quarters by an industry-wide shortage of computer storage drives resulting from the recent flooding in Thailand, the computer maker said Tuesday.

Dell predicted full-year revenue near the low end of the guidance it issued in August, which called for revenue growth of 1 percent to 5 percent over 2010 and was in turn a reduction from a previous forecast.

Dell Inc. cited the uncertain economy, as well as the disk drive shortage. The Thai flood waters, which started spreading in August, are now receding, but they closed many of Thailand's tech-related factories, including a bevy that produce a critical component of personal computers: hard disk drives.

During a conference call with analysts to discuss the company's third-quarter results and outlook, Dell's executive leading manufacturing, procurement and the supply chain, as well as PC engineering, design and development, said the "complexity" of the situation makes it hard to determine the scope and length of hard drive shortages. Jeff Clarke said this means the industry must keep an eye on how it's allocating its resources "at least" throughout the first quarter of next year.

"Our goal is to mitigate any impact to our customers in Dell, and our teams will be working throughout the quarter to do just that," he said.

The shortages come as the personal computer industry already is dealing with decreased demand. Sales have slowed, particularly in the U.S. and Europe, because debt and unemployment fears and the growing popularity of tablet computers have led many consumers delay replacing PCs. In addition, the March 11 earthquake and tsunami in Japan hurt supplies of memory chips.

Hewlett-Packard Co. plans to report Monday on how it fared during the most recent quarter and this should offer more insight into the performance of computer makers overall.

Dell's forecast, lowered in August from a previous estimate of 5 percent to 9 percent growth, translates to $62.1 billion to $64.6 billion. Analysts expect $62.6 billion in revenue.

Also Tuesday, Dell said that its third-quarter net income rose 9 percent though revenue remained flat from last year as the computer maker continued pruning less profitable parts of its business.

For the quarter that ended Oct. 28, Dell earned $893 million, or 49 cents per share. This compares with $822 million, or 42 cents per share, in the same quarter in 2010.

Excluding one-time items, the Round Rock, Texas-based company said Tuesday that it earned 54 cents per share. This is 8 cents higher than what analysts polled by FactSet expected.

Revenue was flat at $15.4 billion — lower than the $16.2 billion analysts expected.

Dell's revenue from large corporations rose 4 percent to $4.5 billion, while its revenue from consumers fell 6 percent to $2.8 billion. Revenue from the public sector fell 2 percent to $4.4 billion, and revenue from small- and medium-sized businesses inched up 1 percent to $3.7 billion.

Brian Gladden, Dell's chief financial officer, said several parts of the company, including its consumer and public sector businesses, felt "challenging demand dynamics" during the quarter.

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Lenovo passes Dell to become world's No 2 PC maker

--Lenovo replaces Dell to become world's 2nd-largest PC maker

--Lenovo Chief Executive Yang Yuanqing says the company will keep pursuing acquisitions to boost growth

China's Lenovo Group Ltd. LNVGY +2.40% was named the world's No. 2 personal-computer maker by two research firms on Thursday and Chief Executive Yang Yuanqing said the Chinese company will keep pursuing acquisitions to boost growth.

The firms--Gartner Inc. and International Data Corp.-- also found that global PC shipments rose more slowly than expected in the third quarter, in a sign of consumers' shift away from laptop and desktop computers toward mobile devices as their budgets shrink.

Lenovo will "fully leverage" acquisitions to keep growing, Yang said in an interview, without elaborating on specific acquisition targets. Lenovo, which bought International Business Machines Corp.'s PC business in 2005, passed Dell Inc. DELL -1.23% in the third quarter to take the PC market's second-place rank in terms of shipments, according to separate surveys by data trackers IDC and Gartner.

Yang said Lenovo's new status as the industry's No. 2 makes it a "strong challenger" to become the world's top PC maker, a status currently held by Hewlett-Packard Co.'s (HPQ) PC business. He added Lenovo won't sacrifice its gross margin to boost its market share.

Both research firms said Lenovo's growth came from increased shipments to Japan and European markets. Gartner attributed Lenovo's growth to its aggressive pricing.

Yang declined to comment on whether Lenovo would be interested in buying H-P's PC business, which it has said it is considering selling or spinning off.

Lenovo earlier this year acquired German PC maker Medion AG, for which it had said it would pay up to EUR465 million (about $640 million) in cash and stock. Lenovo during its last quarter also finished forming a joint venture with Japanese PC maker NEC Corp., a deal in which NEC received $175 million in Lenovo shares.

Yang said he is comfortable with his current stake in the company. Yang in June bought about 8% of Lenovo's outstanding shares for around 3.15 billion Hong Kong dollars (US$403.8 million) from the company's biggest shareholder, Legend Holdings Ltd.

Gartner said shipments of PCs around the world climbed 3.2% to 91.8 million units in the third quarter, well below its earlier projection of 5.1% growth. A similar IDC survey pegged the industry's growth rate in the quarter at 3.6%, lower than an earlier projection of 4.5% growth.

Over the past few months, major PC makers such as H-P and Dell have warned that consumer spending appeared to be slipping. Both Gartner and IDC acknowledged that consumer-PC buying during the important back-to-school season was weak. But they also reported that mobile devices, such as Apple Inc.'s iPad, were competing for and often winning consumer attention when making technology purchases.

"For the moment, PCs have taken a backseat to a range of other devices competing for shrinking consumer and business budgets," IDC analyst Jay Chou said in a report.

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