Dell trumpets record profit
Published: 13 Aug 2004 09:15 BST
Dell posted second-quarter earnings on Thursday afternoon that met Wall Street's expectations for revenue and profit.
The PC maker posted a profit of $799m (£440m), or 31 cents a share, a company record, on revenue of $11.7bn for its second fiscal quarter, which ended on 30 July. During the same quarter a year ago, the company saw a profit of $621m, or 24 cents per share, on revenue of $9.8bn. Its revenue and profit increased by 20 percent and 29 percent, respectively, year over year.
On average, 25 analysts surveyed by Thomson FirstCall expected Dell to report a profit of 31 cents per share, while 22 agreed the company would turn in revenue of $11.7bn for the quarter. The analyst numbers followed Dell's own prediction. It raised its profit forecast for the quarter by 2 cents, to 31 cents, on 16 July.
Dell's results will undoubtedly be examined closely by Wall Street following HP's Thursday release of lower-than-expected second-quarter results. HP, which issued a preliminary earnings statement early Thursday, cited weakness in servers and storage systems, caused by a combination of its own lack of execution in the United States and Europe and on market conditions, which it said produced only a muted uptick in server sales toward the end of its quarter. That quarter ended on 31 July.
Dell saw no such problems with its server group, however. The company said its server shipments grew by 31 percent during the quarter. Overall, its product shipments increased by 19 percent. But its highest growth rate came from its Europe, Middle East and Africa region, where it said shipments increased by 30 percent.
During a conference call with reporters after the earnings release, Dell chief executive Kevin Rollins said the company did not see any kind of sales slowdown during the quarter, like some of its competitors. Instead, it has observed that demand from businesses in the United States has increased steadily for the last three quarters.
When it comes to the company's view of the second half, "We just went out with another fairly bullish guidance for our Q3. That should tell you," Rollins said.
Looking ahead
Dell expects its product shipments to rise by 21 percent year over year during its third quarter, which should help it to boost its earnings per share to 33 cents and lift revenue to about $12.5bn, up 27 percent and 18 percent, respectively.
The forecast matches analysts' expectations. Analysts surveyed by First Call ahead of Dell's earnings release on Thursday expected the company's third-quarter profit to hit 33 cents per share and revenue to top $12.5bn.
Dell executives believe that lower component costs will allow it to lower prices on PCs, helping it to ship more units. Chief financial officer Jim Schneider estimates that component prices will decline by about half a percent per week during the current quarter.
But Dell will continue to go after profits and thus will avoid practices such as selling large numbers of low-price PCs just to gain market share -- a practice chief executive Rollins described as "kind of nutso", during a conference call to discuss the company's earnings with analysts.
The second-quarter results show Dell's PC business and its corporate server and storage lines -- which are among its highest priorities -- are selling well. However, the company is still working its way into new markets, such as printers.
In printers, a business introduced in March 2003, Dell is on track to sell over 5 million units during its current fiscal year 2005, the company said. It will get there by building on its existing business, which includes numerous inkjet and laser printer models. It plans to introduce models such as colour laser printers soon and to move into new geographic markets. It will begin selling printers in China during the third quarter, for example, chairman Michael Dell said during the conference call.
The company intends to begin selling new Dell-brand flat-screen televisions within a few weeks. Those models will include larger screens, Dell said. It also plans to deliver a plasma screen TV this year.
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