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Dell's Net, Sales Jump; Share Grows

Posted on: Monday, 17 May 2004, 06:00 CDT

Computer maker Dell Inc. said Thursday that its fiscal first- quarter earnings rose 22 percent, helped by growth overseas and strong sales of server computers and high-capacity storage devices.

Dell earned $731 million, or 28 cents a share, in the period ended April 30, up from $598 million, or 23 cents, a year earlier. Revenue increased 21 percent to $11.5 billion from $9.5 billion last year.

The growth keeps Dell on track toward its goal of posting revenue of $60 billion to $70 billion by 2007.

"The market-share gains they had in the first quarter appeared fairly impressive, so I think they're on a continued trend to take more share," said James Ragan, an Los Angeles analyst with Crowell, Weedon & Co.

Revenue in the current quarter probably will reach $11.7 billion, up but profit in the period probably will not exceed analysts' consensus estimates of 29 cents a share, Chief Financial Officer Jim Schneider said. Analysts polled by Thomson First Call had predicted per-share earnings of up to 31 cents.

Dell's unit sales outside the United States were up 35 percent, and revenue was up 31 percent, Schneider said. In Japan, Dell surpassed NEC Corp. during the quarter to become the No. 1 provider of server computers for the first time.

Kevin B. Rollins, who has been named to replace Michael S. Dell as chief executive in July, said Dell would face rising costs for components and would increase cost-cutting efforts. Dell had hoped that the cost of DRAM -- dynamic random access memory -- chips used in computers would ease early this year, but that didn't happen. The increases translated to more than $10 per computer, most of which Dell couldn't pass on to consumers.

Meanwhile, the average price for products sold slipped to $1,570, down $50 per unit from a year ago. The combined cost and price trends caused Dell's gross profit margin to slip to 18 percent from 18.3 percent a year ago.

"It's all about margins," said Brent Bracelin, an analyst with Pacific Crest Securities. "It's their lowest operating margin in six quarters when the economy is supposed to be getting better."

Dell's printer business, launched 14 months ago under a manufacturing agreement with Lexington, Ky.-based Lexmark International Inc., has been stronger than anticipated, with first- quarter sales of more than 800,000. Schneider said Dell's inkjet printers hold about 10 percent of the U.S. market; its all-in-one printers have about 17 percent.

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