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2/16/2006
06:27 PM
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Dell Posts Higher Profit

With record sales outside the United States, profit rose more than expected. But the company's outlook for next quarter's growth caused the stock price to slip.

Dell reported 52 percent earnings growth for its most recent quarter, handily beating Wall Street expectations, but the PC maker dampened forecasts for its current quarter.

The Round Rock, Texas-based PC maker turned in sales of $15.2 billion for its fourth quarter, compared with $13.5 billion for the same quarter a year earlier. Dell posted earnings of $1.01 billion, compared with $667 million for the year-ago period. Dell’s earnings per share were 43 cents, eclipsing the average of Wall Street estimates of 41 cents.

Executives admitted their customer service reputation has taken a hit.

“We ceded some ground on a core attribute of our Dell direct model, and that is our unparalleled customer satisfaction experience,” Dell CEO Kevin Rollins said in a conference call with financial analysts. “As a management team, we deem this unacceptable.” He said Dell’s priority was to “drive personal accountability across the entire organization.”

Dell executives also said they expected revenue for the current quarter of between $14.2 billion and $14.6 billion. The average of Wall Street estimates was for Dell to show revenue of $14.76 billion.

In after-hours trading, shares of Dell dropped by 28 cents per share to $31.68.

Dell’s quarterly results were critical for the company, which had disappointed financial analysts with its results for two straight quarters. In addition, Dell rival Hewlett-Packard, one day earlier, reported drastically improved sales and profitability during its most recent quarter.

Rollins also added no new light on the company’s potential move to provide systems based on processors from Advanced Micro Devices (AMD). When asked by an analyst if there was anything new to report on that front, Rollins bristled. “We have nothing to add to that,” Rollins said. “We’re always assessing technologies. We see no need to change at this point, with our server [sales] growing at double the rate of our next competitor. With that said, we’re not an exclusive buyer of Intel only.”

Year-over-year, Dell saw its storage business grow by 41 percent; its enhanced services grow by 26 percent; and its mobility business by 22 percent. Dell’s core desktop PC business grew by 1 percent, compared to the year-ago quarter.

Dell’s printer hardware business -- where it outsources from several companies including Lexmark -- grew by 17 percent, and Rollins said Dell’s print supplies business grew by between 80 percent and 90 percent. Key to the company’s success, executives said, was that its color printing business, which has higher margin, grew by 50 percent.

“We would prefer our [printer] hardware to grow faster than it did,” Rollins said. “We will take some corrective actions.” Pressed by analysts to say how, he pointed to pricing and marketing actions.

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