Sales will top forecasts, Dell says

PC maker expects first-quarter profit to come in on target

April 04, 2002|By Bloomberg News

NEW YORK - Dell Computer Corp. said yesterday that fiscal first-quarter sales will exceed forecasts and profit will meet targets, as the world's biggest personal-computer maker wins business from rivals and reduces costs.

Dell shares jumped as much as 3.1 percent on the news in after-hours trading.

Revenue in the period ending May 3 will be about $7.9 billion, the company said in a statement. Dell said in February that it would earn 16 cents a share on sales of $7.65 billion to $7.82 billion.

Chairman Michael Dell has predicted that corporate PC sales will revive in the second half. To compensate for the prolonged slump, the PC maker has focused on consumers, including a stepped-up TV advertising campaign. In a meeting with analysts in New York tomorrow, Dell is to outline plans to boost sales of more profitable corporate computers, such as servers and storage devices.

"This is very positive for Dell, but I would be cautious about extrapolating that to the rest of the industry," said James Lyon, a portfolio manager at Oakwood Capital Management, which owns 136,000 Dell shares and manages $375 million in assets. "We're coming out of our recession, but technology will lag a little while longer."

Dell shares rose as high as $27 after the revised forecast. They had fallen 38 cents to $26.19 in regular trading before the announcement. The stock has gained 12 percent in the past year.

Analysts polled by Thomson Financial/First Call on average expect earnings of 16 cents a share on revenue of $7.7 billion.

In last year's first quarter, Dell had net income of $462 million, or 17 cents a share, on sales of $8.03 billion.

Dell sells PCs directly to customers, building systems only after clients place an order on the phone or the Internet. The company said its manufacturing and operating efficiencies let it pass cost savings on to customers in the recent period, adding sales.

Some investors said they were concerned that rising prices for PC parts, such as dynamic random-access memory chips, might reduce Dell's earnings.

Component costs have "flattened somewhat," compared with last year when they dropped, Chief Operating Officer Kevin Rollins said in the company's statement. At the same time, Dell has increased internal cost reductions, Rollins said.

Rollins said Dell will reclaim its No. 1 position in the PC market about two quarters after Hewlett-Packard Co. completes its pending acquisition of Compaq Computer Corp.

Dell, which supplanted Compaq as the biggest PC maker last year, had about 14 percent of world PC shipments in the fourth quarter, according to research firm IDC. Compaq and Hewlett-Packard together would have had about 19 percent of the market.

"We'll see what happens in two quarters if they're still the leader," Rollins said. "Look at their trajectory. They said they'll lose 5 percent in revenue, and PCs are not their focus."

Hewlett-Packard is seeking to complete the proposed $18.9 billion acquisition of Compaq by May. Director Walter B. Hewlett, who solicited proxies against the acquisition, has filed a lawsuit to stop the deal while awaiting the official results of last month's shareholder vote. Hewlett-Packard says that buying Compaq will give it the market-share lead in more-profitable servers and help lift sales of storage products, management software and services.

Dell is targeting some of the same markets. The company yesterday unveiled three new server computers, part of a push to boost profit by selling more machines that run networks and Internet sites.

As Hewlett-Packard becomes a bigger competitor in PCs, Dell's strategy will be to sell fewer printers from the Palo Alto, Calif.-based company, which is the world's largest printer maker. Dell will instead start selling more equipment from No. 2 printer maker Lexmark International Inc., Rollins said.

Rollins said Dell isn't planning to acquire other companies because the PC maker would prefer to increase sales on its own. If Dell did make an acquisition, it would buy a company with expertise in professional services, network products or storage devices, he said.

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