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Dell 2Q Profit Rises, Revenue Misses View

Posted on: Thursday, 11 August 2005, 21:00 CDT

DALLAS -- Increased shipments boosted Dell Inc.'s second-quarter by 28 percent but revenue fell below Wall Street expectations as the company blamed overly aggressive pricing of its low-end desktop and notebook computers.

Revenue at the world's largest PC maker rose 15 percent to $13.43 billion from $11.71 billion last year.

The results reported Thursday matched analyst forecasts of 38 cents per share but fell below projected revenue of $13.71 billion, according to Thomson Financial.

Dell shares, which fell 15 cents to close at $39.58 on the Nasdaq Stock Market, tumbled 7.7 percent, or $3.03, to $36.55 in late trading. Dell released the profit report after the market close.

Net income climbed to $1.02 billion, or 41 cents per share, from $799 million, or 31 cents per share, during the year-ago period.

The Round Rock, Texas-based company said its results included a 3-cent tax benefit, without which it would have earned 38 cents per share in the latest quarter.

Chief Executive Kevin Rollins blamed the revenue shortfall on lower prices on its low-end desktops and laptops.

He said U.S. consumers in particular didn't upgrade to more expensive models as much as expected.

"We can sell systems at $299 and $399, but we don't want to," he said. "We just misexecuted and didn't get the upsell in the consumer business that we normally get. That just got away from us. We stumbled there but we'll get that back in line."

Still, Dell reported an industry-record shipments of 9.1 million computer systems - including 2.7 million mobility products - and company-record revenue of more than $2 billion from software and peripheral products, including printers and displays for the quarter ending July 29.

Dell saw the strongest gains in sales of laptops, which increased 20 percent year-over-year, while revenue from outsourced computer system management grew 41 percent from the year-ago quarter.

Analysts were not especially concerned with the revenue shortfall.

"Sometimes the expectation game gets to be a little silly," said Barry Jaruzelski, management consultant at Booz Allen Hamilton. "They took share in every segment they're playing in. They still improved their overall operating margin. What it says is the market is getting a little softer."

Tim Bajarin, analyst at Creative Strategies, said Dell's numbers were good considering the squeeze that the overall industry is facing.

"Just knowing how well they compete, I have to believe that things bode pretty well for them and even the industry in general," he said. "At the same time, they're going to have to be much more aggressive in their marketing to try to get people to go into the mid- and upper-range systems."

Later this year, Dell is expected to launch a new line of high-priced premium PCs, but the company has declined to discuss any details of that strategy.

Rollins did not anticipated any price increases, despite what he called a "tight" supply of components such as memory chips and flat panel displays which he predicted would last through the third quarter.

Globally, Dell posted a quarterly growth rate of 18 percent. Most of that was in European and Asian market, which grew at 21 percent and 24 percent, respectively. The U.S., meanwhile, saw a less robust 11 percent.

Rollins said purchasing from the federal government, slow in the past year, was particularly slow in the second quarter.

He painted a rosier picture for the third quarter, where continued steady purchase rates by corporate customers, the seasonal impact of back-to-school buying in the consumer segment, and continued growth in markets outside of the United States would drive business.

The company projected third-quarter earnings in the range of 39 cents to 41 cents per share on revenue between $14.1 billion and $14.5 billion. Wall Street anticipates earnings of 41 cents per share on higher revenue of $14.63 billion.

The company bought back another $1.8 billion in stock during the quarter. Dell has spent $3.8 billion in the past six months as it continues to reduced the number of outstanding shares.

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On the Net:

http://www.dell.com

Source: Associated Press/AP Online

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