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Dell: Lower earnings and revenue

The computer maker struggles as the global economic slowdown pinches tech spending, and slashes expenses to beat their earnings forecast.

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By Catherine Clifford, CNNMoney.com staff writer

Since the start of the recent market meltdown, how often do you check your 401(k) balance?
  • Once a day
  • Once a week
  • Once a month
  • I can't bear to look

NEW YORK (CNNMoney.com) -- Dell Inc., reporting lower quarterly earnings and revenue, said Thursday that the global economic slowdown has caused consumers and businesses to pull back on technology spending.

The computer maker said it has been cutting costs and slashing jobs. In fact, its earnings-per-share were better than expected.

Dell reported quarterly sales of $15.16 billion, which dropped 3% from a year ago and missed analysts' expectations of $16.21 billion, according to Thomson Reuters.

Dell (DELL, Fortune 500) reported net income of $727 million in the quarter, a decrease of 5% from $766 million in 2007. Earnings per share totaled 37 cents, beating analysts' expectations of 31 cents per share.

Chairman and Chief Executive Michael Dell noted that customers want more for their money in the economic slowdown. "We're simplifying IT, reducing costs and maximizing productivity for customers," he said in a written statement.

"The range of the global economic challenge is obvious to everyone," Dell said. "Customers of all types are still buying technology, but they're doing so at slower rates, and want to save money when they're buying and using IT."

Sales from outside the U.S. made up 48% of Dell's total revenue in the quarter. Sales in Brazil, Russia, India and China increased 20%; shipments rose 43%.

While the company did not offer specific guidance on sales and profit for the coming quarter, it did say that it believes global demand will continue to be soft. Dell said it would focus on cutting costs in the future and that there would be costs associated with continued headcount reduction and other business realignments.

Cutting costs to deal with the slowdown

The primary focus of executives was cutting costs as a way to deal with the slowdown in technology spending, according to prepared statements and comments in the conference call.

In a written statement, chief financial officer Brian Gladden said that Dell has been working for several quarters to reduce costs.

"Since the second quarter of last year we reduced global employment by close to 11,600, net of acquisitions," Gladden said. "We're on track to achieve our goal of $3 billion in annualized cost reductions by 2011."

The company said it ended the quarter with 2,200 fewer jobs than in the second quarter, and that its head count decreased 9% from the year-ago period.

In the conference call, Gladden and Dell again reiterated their focus on cutting costs. "In this environment, we are going to be very aggressive with costs. It is the one level we can control," said Gladden.

"Given the choice between profits and growth, we are going to go for the profits," Dell said on the call. "Our belief is that with the changes we are making in our cost structure, we will be able to do both."

One analyst said that the billion dollar disconnect between what Dell reported in sales and what Wall Street expected them to report was cause for concern.

"The company is struggling to find the right balance between profitability and growth," said Ashok Kumar, senior analyst at Collins Stewart. "The cost cutting only takes you so far and the question is what is the game plan to resuscitate growth when demand does stabilize," said Kumar.

Shares rose 4.5% in after-hours trading after ending the regular session down 54 cents to $9.81. In the past year, Dell's stock has dropped more than 60%.

Kumar said the after-hours pop in Dell's stock could have stemmed from low expectations. "I don't think it's a sustainable move," he said. "You need something to hang your hat on."

Dell has struggled against tough competition from its more healthy rival, Hewlett-Packard (HPQ, Fortune 500), which is set to report fiscal fourth-quarter results after the closing bell Monday. Analysts expect sales of $33.3 billion and earnings per share of $1.01, according to Thomson Reuters. To top of page

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