Dell issues profit warning, sort of

Austin (TX) – Box-shifter Dell warned today that demand for its products ‘appears to have stabilized’ and expects to report only a slight revenue increase in its second quarter, which ends July 31.

The company also predicts a decline in Q2 gross margins, as a result of higher component costs, a competitive pricing environment, and ‘an unfavorable mix’ of product and business-segment demand.

Speaking ahead of an analyst meeting in Austin scheduled for 0800 CDT today, Dell CFO Brian Gladden said that while demand for Dell’s products and services remains static, it varies significantly by customer segment and geography.

“We continue to believe that customers are deferring IT purchases, and that we will see demand return to more typical levels at some point,” said Gladden. “In the meantime, we continue focusing our energy and resources on the operating initiatives that will improve the company, and position us for future success.

“One of our strengths is understanding customer needs and meeting them with great technology and services. To do that best we’re investing to expand on existing capabilities and extend into new areas, while smartly and efficiently managing our costs and assets.”

Gladden added that Dell remains on course to reduce annual costs by more than $4 billion by the end of fiscal 2011. Reductions are coming from a combination of greater efficiencies in design and procurement, optimization of manufacturing and supply chain logistics, and further reductions in operating expenses.

Dell is targeting five to seven percent compounded annual growth, operating income of at least seven percent of revenue and cash flow from operations exceeding net income, but warns that these goals are all dependent on a global economic upturn linked to higher IT spending, including a sustained double-digit growth rate in demand for computer systems.

So, fingers crossed, then.