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Dell continues to surge, as expected

The PC maker racks up some hefty sales via the Internet, saying it earned 16 cents per share for the first fiscal quarter, which matched estimates.

Dell continues to rack up sales over the Internet and big gains in revenue, the company said in its quarterly earnings report.

In its first fiscal quarter for 2000, Dell Computer said it earned 16 cents per share, compared to 11 cents per share for the same period a year ago. Net earnings totaled $434 million, an increase of 42 percent over year-ago results.

Earnings were in line with analyst consensus estimates from First Call.

Revenue grew 41 percent from the same period a year ago to $5.54 billion for the quarter. The company continues to increase the amount of business it conducts over the Internet, selling $18 million a day worth of products--about 30 percent of its overall sales--through its Web site.

The results should further bolster confidence that the PC market is still alive and kicking, despite a relentless price war. Earlier this year, Compaq Computer and other companies warned of lower-than-expected profits because of a perceived slight drop in demand, the Pentium III privacy fiasco, and declining PC prices.

Volume PC shipments, however, have apparently kept ahead of price declines, at least for some companies. Both IBM and Hewlett-Packard had stronger-than-expected quarterly reports recently and both credited it in part to PCs sales.

Last month, Gartner Group Dataquest reported that first-quarter PC sales grew by 17.2 percent worldwide and 20.8 percent in the U.S. Dell grew the fastest among all major producers, Dataquest added.

"We continue to believe overall industry demand is very healthy," said Tom Meredith, senior vice president and CFO of Dell, during a conference call with analysts. Demand will be strong through the remainder of 1999, and that momentum should continue longer term as greater availability of high speed Internet access accelerates PC adoption rates, he said.

A significant contributor to Dell's earnings: The company said revenue from network servers, workstations, and storage products surged 97 percent from year ago results. These products now represent 16 percent of overall sales, a new record, Dell said.

Increasing sales of expensive servers and storage products are seen as essential ways to keep profits up in the face of severe price pressure on desktop and notebook computers.

One early indication of Dell's expectations: The company hired 1,700 new employees during the quarter, which was done "largely in anticipation of fulfilling demand for the second half of the year as we are forecasting it to be," said Meredith.

Still, while many companies would be pleased with revenue growth of 41 percent, the question remains whether analysts will think it is good enough for a company that has grown by more than 50 percent per quarter for two years, excepting last quarter's 38 percent growth rate.

Revenue grew at a slightly lower rate than anticipated by some analysts, who were predicting revenue of between percent $5.5 billion to as much as $5.7 billion. After last quarter's results were reported, Dell's stock took a beating, because it was the first time in two years the company failed to grow the sales faster than 50 percent.

"It's very difficult to deliver those blowout numbers forever," Dan Ries, an analyst at Kaufman Brothers in New York, told Bloomberg. "I wouldn't expect 50 percent growth anytime in the near future."

Even at its current clip, however, Dell is outpacing most other players in the PC industry. In the consumer and small-business market, where it has had a smaller presence, Dell said sales rose 54 percent in the North and South American regions. The corporate market was still robust for Dell, which said sales of servers were up more than three times the industry average, translating into a year-over-year gain of three full points of market share, it claimed.

"For companies with effective, efficient business models, this industry remains healthy," said CEO Michael Dell, in a statement.

Bloomberg contributed to this report.