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Dell tallies a record third quarter

Quarterly revenue for the PC manufacturer rises 22 percent year over year, leading to a third-quarter profit increase of 31 percent.

Dell Computer on Thursday said that its performance in the third fiscal quarter was one for the company's record books.

Quarterly revenue for the Round Rock, Texas, PC manufacturer rose 22 percent year over year, leading to a third-quarter profit increase of 31 percent.

Dell posted net income of $561 million, or 21 cents per share, on record revenue for the company of $9.1 billion for the quarter, which ended Nov. 1. That compares with a profit of $429 million, or 16 cents per share, on revenue of $7.5 billion during the same period in 2001.

The third-quarter 2002 figures for revenue and per-share earnings exactly matched analysts' expectations, according to a survey by First Call. Those expectations in turn reflected Dell's own predictions, which the company had increased to those levels at the start of October.

Dell attributed the quarterly performance to a year-over-year rise of 28 percent in overall product shipments worldwide. Storage systems sales increased by 73 percent, the company said in a statement.

In a statement, Michael Dell, the company's CEO, attributed the performance to a move by both consumers and businesses toward computers based on standard components.

Dell then offered a fairly upbeat outlook for his company's fourth fiscal quarter. He predicted that fourth-quarter revenue would rise 20 percent year over year to about $9.7 billion. That increase would translate to earnings per share of 23 cents, a 35 percent increase year over year, he said.

Looking ahead
Dell executives said they believe the company will continue to gain market share in all of its various market segments but that the majority of the increase will come from consumer sales, which are traditionally strong during the fourth quarter. Meanwhile, markets like government and education typically take a breather during the quarter.

"Our anticipation is that we will have a good consumer quarter," Kevin Rollins, Dell's president, said during a conference call with reporters after market close. However, "there's no way to tell yet how consumers will spend in the consumer market" as a whole, he added.

Despite the uncertainties around the consumer market, Dell will continue to focus on selling more storage systems and services to business customers who are buying that kind of hardware but holding off on PC purchases. The company anticipates that it will sell a large number of its new Clariion CX200 storage systems, developed under its year-old partnership with EMC.

Nevertheless, Dell and other PC makers still aren't seeing a decided turnaround in business spending because companies have not yet begun replacing older computers in large numbers.

"There are "no current signs of a strong rebound in corporate IT spending," said CFO Jim Schneider. Though overall, Dell believes "demand in the industry has stabilized and in some areas it has picked up a bit," he added.

The company may be able to push profits as high as 24 cents per share during the fourth quarter if it can continue to cut costs and if its performance in the PC market matches analysts' best expectations. But if Dell gets into a price war with Hewlett-Packard or can't cut costs during the quarter, it may not hit that number.

HP introduced more aggressive pricing in October, Rollins said, and Dell "responded to that with the same aggressive pricing action in order to maintain our share gains. We have to behave as if that (aggressive pricing from HP) is going to continue."

Dell beat HP by a thread for market share in the third quarter. But weak sales in the government and education sectors in the fourth quarter--which were strong during the third quarter--could conspire to push Dell out of the No. 1 market share position, Rollins said. However, "if that happened, it would just be normal," he added.

Dell has consistently lost market share in its fourth quarters over past years, due to lower levels of sales outside the consumer market, only to come back in the first quarter, he said.