Dell's shares fall as global product demand softens

Dell's shares fall as global product demand softens

Dell reported Tuesday that sales continued to weaken in the third quarter, sending shares tumbling.

Hardware maker Dell said Tuesday that demand for its products has dropped significantly this quarter globally, an acknowledgement that sent its shares tumbling roughly 10 percent.

Dell previously said during its recent second quarter earnings announcement that "continued conservatism" in U.S. IT spending had reached into Western Europe and several countries in Asia. While acknowledging the slowdown, Dell said it will grow faster than the industry as a whole this year.

"We saw a very weak August, and on a relative basis, weaker than usual," Dell CFO Brian T. Gladden said at a Bank of America event Tuesday, which was webcast.

The small business and state and local government markets in the U.S. showed particular weakness, while "corporates have been relatively balanced for us and the consumer market relatively strong," Gladden said.

Gladden declined to provide any new details regarding Dell's plan, announced earlier this year, to reduce annual costs by US$3 billion by the end of its fiscal 2011.

While seeing an overall slowdown in business, Dell is not losing market share in a given region, according to Gladden.

In the current economic climate, it's no surprise that hardware vendors in particular are seeing business weaken, according to one observer.

"The hardware side is the first thing to get hit whenever there's a slowdown," said Forrester Research analyst Andrew Bartels. "The first thing CIOs do is defer purchases of servers and PCs."

The current crisis in the banking sector, and, more broadly, in financial services will have some effect on vendors as financial institutions rein in spending, Bartels said. But more importantly for IT, the banking sector woes could exacerbate problems related to consumer spending and the general economy as for example, a tightening of credit makes it harder to borrow money, he said.

Forrester also released revised 2008-2009 U.S. IT spending projections on Tuesday. Growth in 2008 will be 5.4 percent, compared to the original 3.4 percent projected, while 2009 will see 6.1 percent growth, a sharp drop from the 9.4 percent rise previously estimated.

The changed forecast means that while spending this year will be stronger than expected, it will take longer for a recovery, Forrester said.

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