AP
Dell 3Q Earnings Up 27 Percent
Thursday November 29, 6:45 pm ET
By Matt Slagle, AP Technology Writer
Dell 3Q Earnings Rise 27 Percent but Fall Shy of Analyst Forecasts; Trading Heavy After Hours


DALLAS (AP) -- Dell Inc. said earnings grew 27 percent in the third quarter, buoyed by growth in overseas markets like Brazil and by prices falling for memory chips and other components.

The results fell just shy of analyst expectations.

Dell, which posted results after markets closed Thursday, earned $766 million, or 34 cents per share, in the three months ended Nov. 2. That was up from $601 million, or 27 cents per share, in revised figures from the same quarter a year ago. Revenue grew 9 percent to $15.64 billion.

Analysts surveyed by Thomson Financial were expecting the Round Rock company to post profits of 35 cents per share on revenue of $15.34 billion.

Shares in Dell rose almost 2 percent in regular trading Thursday to close at $28.14. But trading was heavy after hours, with shares falling almost 10 percent, reaching $25.33 at one point.

In the company's first earnings conference call with analysts in over a year, Dell CFO Don Carty and founder and CEO Michael Dell both predicted more restructuring costs for the future. These will include acquisitions, layoffs and what Carty described as a slower decline in component costs.

Michael Dell then outlined a long-term strategy to re-ignite growth that will focus on five key markets and products, including hardware for consumers, software and other products for small- and mid-size businesses, and the lucrative business of software services, where Dell manages computer systems for other companies.

"As we reshape the business here, clearly the intent is to grow cash flow considerably over time," he said. "There's a lot of upside for us in the places that are growing the fastest."

Dell said it experienced rapid growth in countries like Brazil, where revenue grew 45 percent over last year. India saw a 47 percent revenue increase. Revenue for Dell's U.S. consumer business, however, fell 6 percent.

The company no longer provides a specific outlook in its earnings statements.

It's been a rough time for Dell since August 2006, when the computer giant first disclosed an internal accounting investigation and issued a massive notebook battery recall. A few months later, Dell lost its No. 1 position in the PC market to rival Hewlett-Packard Co. and has yet to gain it back.

Extensive changes have followed, including the return of Michael Dell as CEO, a global effort to make some of its consumer products available at retail stores -- instead of only on the Internet -- and plans to lay off 10 percent of its work force.

Yet HP continues to expand and now leads Dell by nearly 5 percentage points, commanding 20 percent of the U.S. market, compared with Dell's roughly 15 percent, according to the latest data from market researcher IDC.

During the quarter, Dell shipped about 9.9 million computers worldwide, compared with HP's 12.8 million, according to research firm Gartner Inc. And Dell had about 14.4 percent of the worldwide PC market, down from 15.9 percent a year earlier and below HP's 18.6 percent.

Michelle Warren, senior research analyst with Info-Tech Research Group, said it was good to hear Dell has a growth plan in place, and she wasn't overly concerned with short-term hiccups as the restructuring continues.

"They've got this plan in place and it's a plan that will take them to a successful ending," Warren said. "It might be a new Dell to those who are outside looking in, but I think it still has the same pedigree that made them into the largest PC company a couple of years ago."

Last month, Dell filed its restated earnings, regaining compliance with Nasdaq Stock Market regulations. The filing showed profit was $92 million, or 3 cents per share, less than reported for combined fiscal 2003 through the first quarter of fiscal 2007.

Dell's fiscal years end in January.

Dell still faces an SEC investigation and shareholder lawsuits over its accounting.

The company incurred a $50 million charge, equal to 2 cents a share, for costs related to work force cuts. Another $28 million, or 1 cent a share, was spent in the quarter to resolve the accounting issues.

Earnings received a $45 million boost, equal to 2 cents per share, from a tax benefit due to a growing percentage of profits coming overseas.

Dell has 89,100 temporary and permanent employees worldwide and still intends to eliminate 10 percent of its work force by next year. Carty suggested that figure could be a bit of moving target due to a recent slew of acquisitions which have added workers.

The company also plans to restart its share buyback program in December. The program was suspended in August.

An annual shareholders meeting is scheduled Tuesday at Dell's main campus.

http://www.dell.com