Dell hits profit target

May 17, 2001: 6:16 p.m. ET

Leading PC maker earns 17 cents per share, meeting its estimate

NEW YORK (CNNfn) - Dell Computer Corp. on Thursday reported a fiscal first-quarter profit that met expectations on sales that rose 9.6 percent from the same quarter last year.

And the company's founder and chief executive said he expects revenue to decline in the current quarter, while operating margins will remain stable.

After the close of trading, the No. 1 supplier of personal computers said it earned $462 million, or 17 cents per share during the quarter ended in April. That was essentially flat with the profit it reported during the year-ago quarter, and was in line with what executives had told the Street to expect.

At $8 billion, Dell's fiscal first-quarter revenue rose 9.6 percent from $7.3 billion a year ago and also met the expectations executives had set.

Shares of Dell (DELL: Research, Estimates) rose 50 cents to $25.88 on Nasdaq ahead of the earnings report, which was released after the closing bell. They fell $1.02 to $24.86 in extended hours trading.

Twice during the quarter, Dell said it expects to report a profit of 17 cents per share on sales of $8 billion. The last time it reiterated that guidance was on May 7, when it also announced plans to lay off as many as 4,000 employees during the next two quarters.

The Round Rock, Texas-based company recently overtook Compaq as the top global supplier of PCs, and the company has been aggressively cutting prices, its own operating costs as well as its work force.

The job cuts announced in May were in addition to its first-ever large-scale layoffs announced in February, when it cut 1,700 jobs.

Dell executives recently said that they planned to be "ruthless" in their cost-cutting measures as the company aims to maintain its profitability while at the same time picking up market share in a maturing PC market.

During the quarter, Dell said it benefited from lower component costs, which helped it keep its gross margins from falling. Dell's first-quarter gross margin, the percentage of sales remaining after subtracting product costs, was 18 percent, which is equal to the gross margin in the prior quarter.

Executives at Dell said stronger sales of more profitable products such as network servers and notebook computers also helped keep gross margins stable.

Dell's fiscal first-quarter operating margin, which represents net income as a percentage of net sales, improved during the quarter, rising to 7.3 percent from 6.8 percent in the previous quarter. Analysts use a company's operating margin as a measure of operating efficiency and pricing strategy.


	Michael Dell, Dell Computer's chairman and CEO, said he expects revenue to decline in the current quarter while operating margins will remain flat. (CNNfn)

In an interview on CNNfn's The N.E.W. Show on Thursday, Michael Dell, the company's founder, chairman and chief executive, said operating margins will remain flat in the current quarter, which ends in July.

At the same time, Dell said revenue will likely decline between 3 percent and 5 percent from the $8 billion the company just reported, with most of the decline coming from slack demand in the United States. Analysts had generally expected the company's sales to be flat to up slightly.

He also said the company sees some catalysts for growth in the PC industry, including the release of Microsoft's newest operating system, called Windows XP, in October as well as a broader PC upgrade cycle which is expected to begin in the second quarter of 2002. (177K WAV) or (177K AIFF)

Focusing on notebook, server sales
The company claimed combined shipments of its Inspiron and Latitude notebook computers grew at more than twice the industry average, as it advanced to the No. 2 global market-share position -- and within two points of the No. 1 spot.

Dell said combined shipments of servers, storage products and workstations were up 43 percent in the quarter.

The company said revenue from its information technology services business was $751 million, up 48 percent in the first quarter last year. The company attributes that rise to the growth of Dell Technology Consulting, which tests, designs, installs, improves, and provides training for network- and Internet-infrastructures.

From a regional standpoint, Dell said shipments in the Americas were up 23 percent. Company volume grew 21 percent in the United States; Dell unit shipments in Canada and Latin America were up nearly 50 percent. Sales growth in Brazil topped 80 percent, the company said.

The company also said quarterly revenue in Germany and Italy, both key national markets, rose more than 20 percent.

Meanwhile, Dell said its operations in Europe, the Middle East and Africa showed improvement in the first quarter, with shipments in the region rising 24 percent and revenue rising 11 percent.