Dell Profit Up on PC Demand

Dell Inc. (DELL), the world's largest maker of personal computers, said on Thursday it overcame weakness in February and March with a strong end to its quarter in April, led by overseas growth.

On Friday, shares of Dell (search) rose 7.4 percent to $39.33, helping lift the Nasdaq well into positive territory after results met Wall Street expectations and the company said revenue growth should pick up in the coming quarter — easing investor fears that weakness experienced by rivals was spreading.

The company said strong sales in Europe and Japan and in areas such as data storage, printers and TVs helped offset slowing desktop PC growth — offering a mirror image to rival IBM's disappointing results.

"Everything went well in April," Chief Executive Kevin Rollins told reporters following Dell's first-quarter report.

A month ago, Dell had cautioned that February and March sales were weaker than the company had expected. IBM (IBM) then posted far weaker profits and revenues, which it blamed on internal miscues and economic weakness in Europe and Japan.

"It appears to be not a market phenomenon but a 'winners and losers' phenomenon. You are going to see some companies thrive, such as Dell, and some companies continue to struggle." Rollins told reporters, contrasting Dell's results to IBM's.

The results for the quarter matched analyst estimates, while Dell's outlook for a pick-up in revenue growth in the quarter ending in July was equal to or slightly above the average Wall Street target.

"Dell clearly is in good shape," said Knox Fuqua, a portfolio manager at AAM Equity Fund, a Dell shareholder. "It looks like what Cisco did the other day, meaning there are no bad surprises," said Fuqua, referring to Cisco Systems Inc.'s (CSCO) recent earnings report.

Net income rose to $934 million, or 37 cents a share, in the fiscal first quarter ended April 29, compared with $731 million, or 28 cents a share, a year earlier.

Revenue rose 16 percent to $13.39 billion from $11.54 billion. Sales outside the United States grew 21 percent and now represents 42 percent of revenue, the company said.

Wall Street on average was looking for Dell to report a net profit of 37 cents a share and revenue of $13.42 billion, according to Reuters Estimates.

Analysts believe a heavy promotional push by Dell aimed at consumers and small businesses helped offset weakness that Dell officials had cited in February and March. Dell executives said sales of products and services beyond its core PC business were key. Desktop PC sales grew only 6 percent, they noted.

Sales of printers grew 77 percent from a year ago as Dell gained share in a market dominated by Hewlett-Packard Co. (HPQ). Dell now has 10 percent of the laser printer market and 18 percent of the inkjet market, executives said.

"They're obviously making good on the growth objectives in new regions and new categories," Barry Jaruzelski, the lead partner in Booz Allen Hamilton's global technology and electronics practice.

Also working in Dell's favor were faster declines in the price of components used to build PCs, analysts said.

Prices of various types of memory chips fell 10 percent to 50 percent in the final weeks of the quarter. Prices for flat panel displays have dropped by as much as 10 percent since the start of the year at major Taiwanese suppliers.

Dell, based in Round Rock, Texas, expects revenue for its second quarter ending in July to increase between 16 percent and 18 percent, to a range of $13.6 billion to $13.8 billion, with earnings per share of 37 cents to 39 cents, Chief Executive Kevin Rollins said.

Earnings forecasts were in line with current forecasts, but the revenue was equal to or slightly better than the average analyst forecast, according to Reuters Estimates data

Dell stock is down about 11 percent so far this year, a tough one for technology stocks. Concerns that the company's growth in the past two quarters has been decelerating as PC demand matures also dogged Dell.