Dell Profit Up Amid Higher Demand

Dell Inc. (DELL), the world's largest personal computer maker, on Thursday delivered a 29 percent rise in quarterly profit and an upbeat outlook, in contrast to a profit warning issued earlier by archrival Hewlett-Packard Co. (HPQ)

Dell, known for aggressive pricing that allows it to take market share from rivals, gave a third-quarter outlook that was better than analysts estimates. Its shares rose in after-hours trade.

"The news is obviously good both specific to the company's execution and in terms of the company's outlook on the third quarter," said Ali Irani, analyst with CIBC World Markets Corp. He said Dell earnings may give technology stocks temporary reprieve.

Dell said net income for the fiscal second quarter rose to $799 million, or 31 cents per share, from $621 million, or 24 cents per share, a year earlier. That met the average 31 cents per share forecast of analysts surveyed by Reuters estimates.

Revenue rose to $11.71 billion from $9.78 billion a year earlier. Shipments of desktop PCs, notebook PCs and servers rose on average 19 percent from a year ago. That was faster than the growth of the rest of the industry.

The market had been eagerly awaiting Dell's profit report after HP shocked Wall Street hours earlier, releasing earnings that were far lower than expected. HP, which posted its results a week before they were expected, also gave a weak forecast.

"In a slower growth environment, like the one we are going into — an environment where component prices decline — Dell will take share from HP," said Marty Shagrin, an analyst with money management firm Victory Capital.

Dell, which does not hold inventory and sells directly to customers instead of through stores, benefits when component prices fall. It can pass on the savings to customers, slashing prices faster than its rivals can.

Earnings were in line with the outlook Dell gave on July 16, when it raised its forecast by 2 cents per share, citing strong sales abroad and expectations of a lower tax rate.

A month ago, rival International Business Machines Corp. (IBM) posted stronger earnings that handily beat forecasts, providing evidence of solid corporate computer demand. Since then, concerns have been raised by warnings from business software firms. Internet equipment maker Cisco Systems Inc. (CSCO) also recently warned of an inventory buildup.

Chief Executive Kevin Rollins said in a statement that he expects earnings per share of 33 cents in Dell's current, third quarter, on revenue of about $12.5 billion.

Analysts, on average, had forecast a per-share profit of 32 cents, on revenue of $12.47 billion.

The company, based in Round Rock, Texas, said it expected shipments of PCs, servers, storage gear and other products to rise 21 percent in the next quarter.

Dell said on a conference call its revenue from outside the Americas grew by about 30 percent from a year ago. The company said it introduced a new line of printers and extended its geographic reach and gained additional market share.

It said it bought back about $900 million worth of its shares in the second quarter and planned to buy back at least $700 million worth of shares in the third quarter.

The company is on track to sell more than 5 million printers this year and now expects to exceed its initial goal of $1 billion in total printing and imaging revenue.

"I think that's why Dell went into printing because they're fed up with HP supporting their PC business with its imaging and printing profits," Shagrin said.