AP
Dell profit, sales jump in 1Q, topping forecasts
Thursday May 29, 5:33 pm ET
By David Koenig, AP Business Writer
Dell profit, revenue jump in fiscal 1st quarter, beating analyst expectations


DALLAS (AP) -- Dell Inc. said Thursday that its profit and sales grew in its fiscal first quarter, beating Wall Street expectations and signaling that the computer maker's turnaround efforts may be paying off.

For the three months ended May 2, Round Rock, Texas-based Dell Inc. earned $784 million, or 38 cents per share, up from $756 million, or 34 cents per share, in the same period a year earlier.

Dell says its revenue jumped 9 percent to $16.08 billion from $14.72 billion.

On average, analysts surveyed by Thomson Financial expected a profit of 34 cents per share on sales of $15.68 billion.

The company said strong growth of commercial and consumer products and services and lower operating costs as a percentage of sales helped drive the results above the forecasts.

Dell shares rose 12 cents Thursday, closing at $21.81 before the quarterly results were released. In extended trading, the shares jumped $2.02, or 9.3 percent, to $23.83.

Dell is trying to cut costs by $3 billion while also chasing Hewlett-Packard Co. in worldwide shipments of personal computers, a category it once led.

Dell still leads HP in U.S. PC sales, according to technology research firms IDC and Gartner Inc., but that could make Dell more vulnerable to a slowdown in the U.S. economy.

Chief Financial Officer Donald J. Carty told reporters that U.S. businesses "are holding back from spending" on desktops but that sales of servers and data-storage equipment were holding up.

The company reported that worldwide notebook computer shipments rose 43 percent from a year ago. Carty attributed the increase to a continuing shift from sales of desktops to notebooks and Dell gaining a greater market share of notebook sales.

On the cost side, Carty said the company has cut 7,000 jobs from a year ago, including 3,700 during the past quarter, while adding about 2,700 employees through acquisitions.

Founder Michael Dell, who returned to the company as chief executive in 2007, said last month the company would go beyond its earlier goal of cutting more than 8,800 jobs. He pledged to slash costs by $3 billion over several years to boost profits.

Carty, who plans to step down next month, said the biggest challenges for the company now were continuing to control costs and, "We've got to continue to improve the product line."

John Enck, a technology analyst for Gartner, said the better-than-expected resulted indicated that Michael Dell's return refocused the company on controlling costs and repairing relations with business customers.

"The customer experience has been good this year," Enck said.

Dell became successful by selling machines directly to customers -- mostly businesses -- by phone or over the Internet. Its new strategy of selling through retailers as well is an uphill struggle, some analysts said.

Barry Jaruzelski, a partner at the consulting firm Booz & Company, said even as Dell expanded beyond PCs, its success was due to a sharp focus on adding foreign markets and products that were in the company's strengths, such as PC servers and printers.

"Now that so much of the market is consumers, they have been forced into places that traditionally they didn't want to go, which is retail," he said.

With retail sales, Jaruzelski said, Dell loses the direct contact that used to give the company immediate feedback on winning pricing and features and an edge over competitors. Now, he said, "They only know what the retailers will tell them, and they have higher overhead rates."