One of the by-products of the slowdown in the US is a series of price wars in the high-tech sector. Dell and Palm, the world's largest makers of desk computers and hand-held computers respectively, are engaged in blitzkreig tactics to undercut their competitors. But both are continuing to bleed sales and profits.
Faced with sharply lower sales in the coming months, Dell warned in its quarterly report last week that it will not back down from the price war, despite cutting into its own profits. The aggressive strategy enabled Dell to report first-quarter earnings which matched Wall Street expectations, but it warned the outlook is grim for the April-June period though it anticipates a recovery late this year.
Revenue and earnings will probably fall in the current quarter because of reduced demand from corporations which could cut sales by 3-5 per cent, company executives said. Other PC makers would be in trouble if they did not cut operating expenses 40 per cent, the company's chief executive, Mr Michael Dell, warned.
Dell reported net income of $462 million (€526 million) for the first quarter, or 17 cents a share, almost exactly matching the first quarter of 2000. The price-cutting meant that net income remained flat over the year though revenue increased from $7.3 billion to $8.0 billion.
The computer-maker, which employs 4,500 people in Limerick and 1,200 in Dublin, said earlier this month that it would lay off 3,000 to 4,000 of its 39,000 employees, mostly in Dell's home state of Texas. The bulk of these layoffs had already been "worked through", said Mr Jim Schneider, Dell chief financial officer.
In sharp contrast to printer and PC maker Hewlett-Packard, which last week forecast growing weakness in Europe and the US, Dell described business in Europe in the January-March quarter as "quite healthy", particularly in Germany.
Palm, the California-based maker of hand-held computers, has slashed prices for many of its products, igniting a price war in the industry. But it announced last week that revenues for the current quarter would be about half its previous estimate and that it would double its losses, leading analysts to speculate the company would run out of cash by the end of the year.
The warning was compounded by Palm's announcement that the slowing economy has forced it to pull out of a planned purchase of software company Extended Systems, a key step in Palm's strategy to sell devices to corporations. In addition, the company said it would take an inventory-related charge in the quarter of about $300 million.
Palm forecasts a loss in the quarter ending May 31st of between $170 and $190 million, and blamed the economic slowdown and a botched product transition to new Palm m500 and m505 models at a time when there is a glut of older, cheaper devices.
