Dell delivers strong growth, predicts more of same

Strong growth from Dell may ward off fears that the computer giant is slowing down.
Written by Larry Dignan, Contributor

Dell Computer did its usual in reporting better-than-expected second quarter results and predicted continuing strength in the second half of its fiscal year.

The largest direct seller of PCs reported second quarter earnings of $507m (£314m), or 19 cents a share, on sales of $6.14bn. The results beat Wall Street's expectations for both earnings and sales.

First Call consensus for Dell called for earnings of 17 cents a share. USB Piper Jaffray analyst Ashok Kumar was expecting revenue of about $5.8bn.

Dell's sales total may allay some fears. Many analysts on Wall Street were expecting sales growth of about 35 percent, impressive, but not Dell-like. Dell's revenue growth for the quarter was 42 percent. Dell saw "exceptionally strong" growth in the consumer and small-business markets.

In the same quarter a year ago, Dell reported earnings of $346m, or 12 cents a share, on sales of $4.3bn. Sequentially, Dell's sales gained 10.9 percent.

Company executives expect to at least maintain the company's traditional second half growth. A Dell survey of 900 customers indicated that Y2K-related caution among large corporate users would be offset by sales growth from government agencies, small business and consumers. "Our outlook for the rest of this year and all of next remains very healthy as Y2K concerns appear to be diminishing," Dell CFO Tom Meredith said, during an afternoon conference call with analysts. "We see no reason for our historical pattern to deviate."

Second quarter gross margin was 22 percent, up from 21.5 percent in the first quarter, but down from 22.7 percent a year ago. The sequential improvement was helped by steeper-than-expected price declines for parts, Meredith said. "We think components are likely to decline at a healthy pace going forward, although they might not decline at the pace we saw in this quarter," Meredith said.

Average selling prices for PCs fell to $2200 from $2300 previously -- a less steep price decline than competitors saw, Meredith said. Internationally, Dell raked in 70 percent of its sales from the Americas, 23 percent from Europe and 7 percent from Asia.

Sales in the Americas jumped 48 percent from a year ago because the company made inroads to the home and small business markets. Revenue from home and small business customers jumped 67 percent. Sales to large and medium business customers grew at "a very healthy rate," the company said.

In Europe, Dell's sales jumped 24 percent with strong shipments to the United Kingdom and France, where the company commands the number one and number three market shares, respectively, executives said. "I would be very surprised if we do not see accelerating European growth rates," CEO Michael Dell said during the conference call.

In Asia-Pacific, Dell's revenue rose 52 percent.

The company also made progress in the server and notebook computer markets. Enterprise sales, including network servers, workstations and storage products, jumped 85 percent from a year ago. Notebook sales jumped 49 percent, but were constrained by shortages in flat panel displays.

As a percentage of revenue, desktops represented 60 percent of Dell's revenue. Enterprise systems represented 16 percent and notebooks came in at 24 percent.

-- Sergio G. Non contributed to this report.

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