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Dell Q4 results in line
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February 10, 2000: 8:20 p.m. ET
Computer maker's online sales mushroom; server market share grows
By Staff Writer David Kleinbard
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NEW YORK (CNNfn) - Dell Computer Corp., the world's second-largest personal computer maker, reported a 3 percent increase in fourth-quarter net income, results consistent with a forecast the company gave late last month and with analysts' expectations.
The Round Rock, Texas-based PC maker said net income rose to $436 million, or 16 cents per share, in the quarter ended Jan. 28. That's up from $425 million, or 15 cents per share, in the same period last year. Dell (DELL: Research, Estimates) said revenue for the quarter rose 31 percent to $6.8 billion from $5.17 billion.
The latest quarter's
results included about one cent per share from investment gains.
Without that gain, Dell's results were equal to the mean analyst
estimate of 15 cents per share, according to First Call/Thompson
Financial.
Dell posted its profit report after share trading closed on Nasdaq Thursday. In after-hours trading, Dell's stock declined 29/32 to 37-7/8 after closing at 38 25/32 in regular Nasdaq trading.
Click here for an after-hours quote.
The meager increase in quarterly profit was much lower than the company's historical growth rate. Net income rose about 35 percent in fiscal 1999, and analysts predict that profit will grow by 33 percent annually over the next five years.
Dell said late last month its fourth-quarter net income would total about $430 million, prompting analysts to cut profit forecasts that were around 21 cents per share in the quarter. At that time, Dell said that a parts shortage, and a slowdown in corporate spending on PCs, would decrease its fourth-quarter revenue by about $800 million.
Because Dell couldn't obtain an adequate supply of certain semiconductor components from Intel during the fourth quarter, PC shipments were lower than expected, while the profit margin suffered as the company had to pay higher prices for components.
Dell's operating expenses rose to 11.6 percent of revenue in the fourth quarter from 11 percent a year earlier. Quarterly net income as a percentage of revenue declined to 6.4 percent, from 8.2 percent in the same quarter of fiscal 1998.
Dell sees flat earnings in first quarter
During a conference call after the earnings release, Dell's chief financial officer, Thomas Meredith, said the company expects its revenue to grow in the "low 30 percent range" this fiscal year, with net margins in the "mid-7 percent range." Dell forecast that its earnings will be 16 cents per share in the first quarter of fiscal 2000, on par with last year's fourth quarter.
Dell's earnings per share will remain flat between the two quarters because the company needs to "re-stimulate momentum" in sales of computers to corporate customers, and also needs to invest money in its use of the Internet for internal functions, sales, and support.
Dell said in January that sales of PCs to corporate buyers had slowed because companies didn't want to purchase computers right before the Year 2000 date change. Banc Boston Robertson Stephens analyst Dan Niles said on CNNfn television today that the components shortage and Y2K-related problems now are behind Dell and that the company's stock "can get to 50 in the latter part of this year" from today's closing price of 38-25/32.
Dell's sales through its Web site continued to mushroom in the fourth quarter, reaching nearly half of the company's total revenue and averaging $40 million per day by the end of the quarter. That's up from $14 million per day at the same time in the previous fiscal year.
Growth in server sales is strong
Robertson Stephens' Niles noted that Dell accounted for more than 40 percent of the worldwide sales growth of servers. He also said fourth-quarter revenue from services exceeded $490 million, up more than 50 percent from a year earlier.
"Services are much more profitable than their core business," Niles said.
Industry analysts reported that Dell's share of the global server market rose more than five percentage points, making the company the second-largest suppler of server products for the second consecutive quarter. Dell added nearly 10 points of market share in the U.S. server market because of strong sales of its PowerEdge product line.
During the conference call, Dell's Thomas Meredith said that the rapid growth of the Linux operating system and the expected launch of Microsoft's Windows 2000 will help drive the company's server sales. Dell now has a 25 percent share of the U.S. server market, and its U.S. server sales are growing by more than 50 percent annually.
Dell's total product shipments rose by 36 percent in the fourth quarter on a unit basis, a rate analysts estimate is 2.6 times that of the overall computer market. The company's combined sales of enterprise products, which include servers, workstations, and storage devices, climbed 55 percent in the quarter.
For the full year, Dell's revenue rose 38 percent to $25.26 billion from $18.24 billion. Net income rose 27% to $1.86 billion, or 68 cents per share, from $1.46 billion, or 53 cents per share. 
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