Dell hits revised earnings expectations

In its fourth quarter of fiscal 1999, Dell reported earnings of $430 million, or 16 cents per diluted share, compared to $425 million, or a split-adjusted 15 cents per share, for the same period a year ago.

Excluding a penny-per-share gain in income from non-operational items, Dell's earnings were in line with Wall Street's lowered expectations. Dell was previously expected to earn 21 cents per share, but analysts lowered their estimates to an average of 15 cents per share after the PC maker issued a warning in January, according to surveys by First Call/Thomson Financial.

Revenue reached $6.8 billion for the quarter vs. $5.17 billion for the same period a year ago, an increase of about 31 percent. Unit shipment volumes increased 36 percent in the quarter, the company said, surpassing the industry average.

Much of the growth came in the home and small-business markets, where sales increased 57 percent. Revenue from sales in the Asia-Pacific region grew 56 percent during the quarter.

Analysts have been wondering when corporate customers would start ramping up purchases again after having dealt with Y2K issues. Another part of the equation includes a new operating system, Windows 2000, which will be formally released next week. Will purchasing accelerate after the lull that hit Dell and others?

Corporate customers delayed the restart of their purchases through the end of January, and there will still be a lingering "hangover" through the end of February, said Dell chief financial officer Tom Meredith during a conference call with analysts. As for Windows 2000, any boost in sales will mostly register in the latter part of the year, executives said.

"We don't see a mass rush to implement Windows 2000 immediately," said Dell chief executive Michael Dell in the conference call. Dell said there would still be some boost in the short term coming from corporate customers who are buying systems with more memory and with new storage devices in anticipation of eventually upgrading to Windows 2000. By the second half of the year, Dell said the buying rate would take off.

"Dell's so exposed to the corporate market, and with the (Y2K) lockdowns, they just didn't have the orders," Tim Ghriskey, senior portfolio manager for Dreyfus, told Bloomberg. "There still are sporadic product shortages."

Dell's revenue and profit growth was bolstered by increased service contract sales, Dell reported. The company said that revenue from services increased to $490 million during the quarter, an increase of 50 percent from year-ago results.

The computer maker struggled in 1999 to offer an encore to its staggering gains in previous years. Although revenue grew 38 percent in fiscal 1999 compared to fiscal 1998, shares in Dell have fallen about 30 percent from its 52-week high, making it one of the lower-performing issues in the Standard & Poor's 500 Index of late.

Dell had been the best performing member of that index from 1996 through 1998, during which time the stock split four times.

The company's executives had previously blamed an $800 million shortfall in sales on a sporadic supply of chips during the quarter and a sales slowdown in corporate accounts due to Y2K concerns. The chip shortfall cost it $300 million in lost sales--primarily in its new consumer product line, while the Y2K concerns reduced corporate sales by $500 million, Dell said.

Dell closed out fiscal 1999 on a low note: The results mark the second consecutive quarter Dell has warned Wall Street that it won't meet expectations.

And it isn't the only PC maker sounding a sour note about 1999. Gateway had lower-than-expected earnings for the same reasons as Dell. To alleviate the chips shortfall, Gateway recently said it will use AMD products in some systems.

Compaq's most recent quarterly results were in line with expectations, but the results were substantially below its performance of a year ago, as the company struggled to tune its production and business model to regain traction against direct PC sellers like Dell.