Dell (NASDAQ:DELL) is sitting pretty after its first-quarter earnings report, and the key to the company’s success in the quarter: Corporate sales.
Revenue from sales to medium and small business was up 6.9% and revenue from sales to large businesses grew 5.4%. But a drag on results were consumer sales, which dropped 7.5% for the quarter.
This is the nature of Dell’s business right now. Consumers are turning to non-PC devices for their casual computing needs at the same time that businesses are beginning to spend on IT again.
This forces the question: Should Dell walk away from the consumer market?
CEO Michael Dell has been talking a lot about how these trends are fundamentally altering his company. He stressed in an April interview with The Wall Street Journal how two-thirds of Dell’s profit comes from its service business and just one-third from PC sales. Of those PC sales “the vast majority” of profit comes from corporate customers — and not consumers.
Where Dell was once the face of booming consumer PC sales, it is now a leader in corporate computing services of all stripes, and has spent big to get there. One recent acquisition was Perot Systems, which Dell bought for $3.9 billion in 2009. Investments of that sort are clearly paying off.
Meanwhile, the company also has spent significant sums on developing consumer-targeted products that have failed to earn for the company in any meaningful way. The Dell Streak line of smartphones and tablets is a perfect example of a product that hasn’t just been outperformed by competitors like Apple’s (NASDAQ:AAPL) iPhone and Research in Motion’s (NASDAQ:RIMM) BlackBerry devices but completely eclipsed. Even with Dell’s “mobility” division revenue up in the past quarter, it seems that the company would be better served by focusing the majority of its efforts elsewhere.
Of course, despite the drop of 7.5%, consumer sales still represent a huge amount of money for the company, so Dell shouldn’t suddenly just stop making consumer products . That said, Dell should be turning more and more of its resources toward strengthening its place as the leading provider of IT services and PCs to businesses.
It’s making moves in this direction already. The Latitude Windows tablet from Dell coming later this year, for example, is a device principally meant for corporate customers.
Less focus on consumers and more focus on business clients should only help Dell’s stock in the coming years.