DSG warns Microsoft flop has cost £20m in lost profits
DSG, which runs the PC World and Currys chains, warned today that disappointing sales of Microsoft's Vista operating system have cost it £20m in lost profit.
The retailer said that sales of computers running Vista, and boxed copies of the software, had both failed to meet its expectations.
The new software, which replaced the XP system, went on sale to UK customers in January and analysts have warned that early sales have failed to match the popularity of XP. One factor appears to be that Vista's hardware requirements mean it may not run well on older PCs.
DSG had expected consumers to trade up their hardware to use the new operating system and the group's PC World chain ordered in tens of thousands more laptops in anticipation. But the rush never arrived and PC World was forced to slash prices to get rid of the overstocks - cutting margins by 200 basis points.
Finance director Kevin O'Byrne said: "We thought many more customers than transpired would want to change their existing hardware". He blamed Microsoft for the lack of demand, saying DSG was "disappointed with the lack of promotional support" from the software giant.
Shares in DSG fell 7.72% to 125.50p by 1.30pm.
Mr O'Byrne said that the company hoped to make up some of its lost profits in the second half of the year, including the key Christmas period, when DSG generates half its annual profits. Citigroup said it expected full year profits forecasts to fall by £11m to £325m.
The poor sales of Vista hardware meant that the computing division, which includes PC World, underperformed the rest of the company. Its like-for-like sales grew by just 1%, compared with 5% for the total group.
In the electricals division like-for-like sales in the UK and Ireland were ahead 6% - helped by strong sales of computer games consoles over the wet summer months. The Nordic countries and Greece also performed well. But the chain's UniEuro chain in Italy continues to pose problems. Underlying sales in the first half were down 8%.
Mr O'Byrne said there were encouraging signs in Italy - margins are higher, market share has stabilised, stores have been revamped and consumer perceptions are improving. But he admitted the sales were "disappointing" and blamed tough competition. "We would have expected to see better performance and maybe even grown our market share", he said.
DSG's top executive in Italy quit last week for "personal reasons" and the boss of DSG 's UK electricals business has taken control until a replacement is recruited.
Mr O'Byrne said DSG was still facing serious deflation - meaning the retailer has to sell far more units to stand still. The price of laptops, he said, was down 15-19% over the past year, while large flatscreen televisions had dropped in price by 30%. That prompted a 100% increase in the number of flatpanel TVs sold and a 50% increase in the number of laptops - although that figure was boosted by the discounts offered.
Mr O'Byrne said DSG could also cash in on the digital TV switchover: it saw sales of digiboxes in Whitehaven - the first town to make the switch, earlier this week - climb 300% in the last couple of weeks. TV sales also soared and the retailer's Tech Guys operation were appointed as official advisers to help the local population make the change. They will now be bidding to repeat the exercise region-by-region as the contracts come up. DSG refused to say how much the contracts would be worth but said it would be "clearly reasonably material". DSG will release full interim results for the 24 weeks to October 13 on November 28. It earned £70.3m during the same period last year.
The firm's chairman, Sir John Collins, said DSG was "cautiously optimistic" about Christmas. "It already seems certain that products like high-definition televisions, iPods, MP3 players, laptops, digital cameras, games consoles and satellite navigation equipment will be popular with our customers throughout Europe over Christmas," he said.
Richard Hunter, head of UK equities at Hargreaves Lansdown, said the message from DSG was "again disappointing", and suggested there was little sign of its shares recovering. They have fallen 25% in the last five months.
John Clare stepped down as chief executive of DSG last month. His replacement, John Browett, will join the company on December 5. Mr Browett is currently working out his notice from Tesco, where he was operations development director.
Julia Finch and Graeme Wearden
Thursday October 18, 2007
Guardian Unlimited
© Guardian News and Media Limited 2007
DSG, which runs the PC World and Currys chains, warned today that disappointing sales of Microsoft's Vista operating system have cost it £20m in lost profit.
The retailer said that sales of computers running Vista, and boxed copies of the software, had both failed to meet its expectations.
The new software, which replaced the XP system, went on sale to UK customers in January and analysts have warned that early sales have failed to match the popularity of XP. One factor appears to be that Vista's hardware requirements mean it may not run well on older PCs.
DSG had expected consumers to trade up their hardware to use the new operating system and the group's PC World chain ordered in tens of thousands more laptops in anticipation. But the rush never arrived and PC World was forced to slash prices to get rid of the overstocks - cutting margins by 200 basis points.
Finance director Kevin O'Byrne said: "We thought many more customers than transpired would want to change their existing hardware". He blamed Microsoft for the lack of demand, saying DSG was "disappointed with the lack of promotional support" from the software giant.
Shares in DSG fell 7.72% to 125.50p by 1.30pm.
Mr O'Byrne said that the company hoped to make up some of its lost profits in the second half of the year, including the key Christmas period, when DSG generates half its annual profits. Citigroup said it expected full year profits forecasts to fall by £11m to £325m.
The poor sales of Vista hardware meant that the computing division, which includes PC World, underperformed the rest of the company. Its like-for-like sales grew by just 1%, compared with 5% for the total group.
In the electricals division like-for-like sales in the UK and Ireland were ahead 6% - helped by strong sales of computer games consoles over the wet summer months. The Nordic countries and Greece also performed well. But the chain's UniEuro chain in Italy continues to pose problems. Underlying sales in the first half were down 8%.
Mr O'Byrne said there were encouraging signs in Italy - margins are higher, market share has stabilised, stores have been revamped and consumer perceptions are improving. But he admitted the sales were "disappointing" and blamed tough competition. "We would have expected to see better performance and maybe even grown our market share", he said.
DSG's top executive in Italy quit last week for "personal reasons" and the boss of DSG 's UK electricals business has taken control until a replacement is recruited.
Mr O'Byrne said DSG was still facing serious deflation - meaning the retailer has to sell far more units to stand still. The price of laptops, he said, was down 15-19% over the past year, while large flatscreen televisions had dropped in price by 30%. That prompted a 100% increase in the number of flatpanel TVs sold and a 50% increase in the number of laptops - although that figure was boosted by the discounts offered.
Mr O'Byrne said DSG could also cash in on the digital TV switchover: it saw sales of digiboxes in Whitehaven - the first town to make the switch, earlier this week - climb 300% in the last couple of weeks. TV sales also soared and the retailer's Tech Guys operation were appointed as official advisers to help the local population make the change. They will now be bidding to repeat the exercise region-by-region as the contracts come up. DSG refused to say how much the contracts would be worth but said it would be "clearly reasonably material". DSG will release full interim results for the 24 weeks to October 13 on November 28. It earned £70.3m during the same period last year.
The firm's chairman, Sir John Collins, said DSG was "cautiously optimistic" about Christmas. "It already seems certain that products like high-definition televisions, iPods, MP3 players, laptops, digital cameras, games consoles and satellite navigation equipment will be popular with our customers throughout Europe over Christmas," he said.
Richard Hunter, head of UK equities at Hargreaves Lansdown, said the message from DSG was "again disappointing", and suggested there was little sign of its shares recovering. They have fallen 25% in the last five months.
John Clare stepped down as chief executive of DSG last month. His replacement, John Browett, will join the company on December 5. Mr Browett is currently working out his notice from Tesco, where he was operations development director.
Julia Finch and Graeme Wearden
Thursday October 18, 2007
Guardian Unlimited
© Guardian News and Media Limited 2007
