2nd UPDATE: Dell Lowers Outlook On Weak Consumer, Government Spending

Dell Inc. (DELL) said its second-quarter profit jumped nearly two-thirds on strong demand from corporate customers, but slowing sales to consumers and the U.S. government prompted the company to lower its full-year revenue target.

Round Rock, Texas-based Dell said it expected revenue to climb 1% to 5% for the year, lower than its previous range of 5% to 9%, as it faces a challenging sales environment. Shares of the personal computer maker fell 7.5% in after-hours trading to $14.62 following the report Tuesday.

Chief Financial Officer Brian Gladden said during a conference call that consumers were a particular challenge for the company. Investment firm Susquehanna recently said seasonal back-to-school spending by students and families was looking "very weak."

Gladden also said U.S. government spending was slow, a dynamic that came amid a contentious debt-ceiling debate in Washington.

Still, Dell said it was gaining share in high-priced computers and storage devices, a development that follows its efforts to streamline its product portfolio. The company has been winnowing cheaper offerings and products it resold from partner companies, replacing them with higher-margin devices, some of which it has acquired.

The effort has helped improve Dell's gross margin, which rose to 22.5% from 16.6%, even though customers bought fewer products as they familiarized themselves with the company's new portfolio.

"That's a trade-off we are willing to make," Gladden said, adding that demand for the company's core products, such as servers, was still healthy.

The company's mixed performance comes as Dell integrates several businesses, including storage systems, security and networking, alongside its core computer-hardware business in an effort to compete with larger rival Hewlett-Packard Co. (HPQ). Dell has been on an acquisitions spree, buying high-end data-storage firm Compellent Technologies Inc. in February and announcing plans to acquire networking equipment maker Force10 Networks Inc. in July.

For the quarter ended July 29, Dell reported earnings of $890 million, or 48 cents a share, up from $545 million, or 28 cents a share, a year earlier. Excluding acquisition-related charges and other impacts, adjusted earnings grew to 54 cents a share from 32 cents. Analysts surveyed by Thomson Reuters expected 49 cents.

Revenue inched up 0.8% to $15.66 billion. In May, the company projected "midsingle digit [percentage] revenue growth" from the first quarter's $15.02 billion.

"It's a continuation of what we've seen for the company: a focus on the margins," Gleacher & Co. analyst Brian Marshall said.

Dell reported revenue from desktop personal computers, or PCs, decreased 3.5% in the latest quarter. Revenue climbed 0.8% from the large enterprise customer segment and 4.9% for small and medium businesses. It decreased 2.7% for public customers but rose 1.3% for the consumer segment.

-By Ian Sherr, Dow Jones Newswires; 415-439-6455; ian.sherr@dowjones.com

--John Kell contributed to this article.

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