Notebook Sales Help Dell to Surpass Forecasts

May 30, 2008
Notebook Sales Help Dell to Surpass Forecasts
By LAURIE J. FLYNN

Dell delivered the goods on Thursday.

Dell, the second-largest computer maker, beat analysts’ forecast for its
first quarter on strong notebook sales and lower costs, sending a strong
signal that the company’s year-old turnaround plan is working.

The company’s first-quarter revenue was $16.08 billion, up 9 percent
from $14.72 billion in the year-earlier quarter. Net income was $784
million, or 38 cents a share, up from $756 million, or 34 cents, in the
period a year ago.

Analysts forecast an average profit of 34 cents a share on sales of
$15.68 billion, according to Thomson Financial.

“We are executing on all points of our strategy to drive growth in every
product category and in every part of the world,” said Michael S. Dell,
the company’s founder, who returned as chief executive to lead its
turnaround effort in January 2007. Since his return, Mr. Dell has
instituted a broad plan aimed at cutting costs, improving customer
relations and revamping the product line.

At the same time, the company also warned that businesses appear
cautious about technology spending, and that the caution is spreading to
smaller companies from large ones.

“We are seeing conservatism in I.T. spending in the U.S.,” said Donald
J. Carty Jr., Dell’s chief financial officer. “We expect that to
continue in the summer.”

Mr. Carty, who will be succeeded this quarter by Brian Gladden, said the
company was seeing the caution mostly in the desktop market, while
servers and storage products were strong. Sales in the United States
commercial division, which accounts for 45 percent of Dell’s business,
remained roughly flat.

Wall Street analysts have been concerned that an economic slowdown in
the United States, along with lower average selling prices that have
resulted from a price war with competitors, could further hurt the
company. But Mr. Dell said companies appeared to see the value in
updating their computer systems even in difficult times.

“Even companies in the most dire situations have to upgrade their
productivity tools,” Mr. Dell said.

Dell shares rose 12 cents to close at $21.81 before the report, which
was released after the end of regular trading. Shares rose as high as
$23.97 in after-hours trading, or nearly 10 percent.

Dell’s unit sales were up sharply during the quarter, with most
categories growing faster than the industry. Overall product shipments
increased 22 percent during the quarter, the biggest increase in two
years, with servers growing 21 percent. Notebook unit growth, a priority
for the company, was 43 percent.

“It was pretty impressive. They were able to do better than expected,”
said Shaw Wu, an industry analyst at American Technology Research. “They
did a better job of translating strong unit growth into actual results.”
He noted, however, that Wall Street’s expectations for the quarter were
low. The company did not provide specific guidance for the second quarter.

Dell, of Round Rock, Tex., has been struggling to stage a comeback after
losing its lead in the personal computer market last year and has spent
more than a year making fundamental changes to try to return to
consistent profitability and profit margins. The company has been
focusing on its notebook computer line, with its higher margins, and on
increasing sales to emerging markets.

Dell’s revenue from international sales grew more than revenue from
United States sales for the first time. Brazil, Russia, India and China
led the growth with a 58 percent revenue increase, accounting for 9
percent of Dell’s sales during the quarter.

Mr. Carty said the company had cut 7,000 jobs during the last 12 months,
while adding about 2,700 employees through acquisitions. Dell executives
said they saw opportunities for further job reduction but did not elaborate.

“We are cutting costs every day for the life of this company,” Mr. Carty
said.

Copyright 2008 The New York Times Company

http://www.nytimes.com/2008/05/30/te...ref=technology