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Tandem benefits from profits

Stock prices rise after the computer company reports a nearly sixfold increase in first-quarter profits.

Bolstered by sales of real estate and high-end servers, Tandem (TDM) today reported a nearly sixfold increase in first-quarter profits.

Tandem posted net profits of $11.8 million, or 10 cents a share, for the quarter ending December 31, compared with nearly $2 million, or 2 cents a share, a year ago.

But nearly half of the company's profits, roughly 4 cents a share, came from the sale of property near San Jose, California, company spokeswoman Deb Cromer said. Without the real estate transactions, the company's operating profit was 6 cents a share.

Tandem's performance was in line with Wall Street's expectations of 4 cents a share in operating profits. The company's stock, which closed at 13-1/8 yesterday, jumped 8.57 percent to close at 14-1/ 4, up 1-1/8.

Also driving up profits were sales of Tandem's high-end NonStop Himalaya K20000 server, its core business. Revenues, largely driven by strength in the communications market, grew 10 percent for these servers.

The Himalaya servers carry high gross margins, giving Tandem a tidy profit per sale. Total Himalaya sales reached $125 million for the quarter, said John Jones, an analyst with Salomon Brothers.

He also noted that Tandem's professional services unit, which has been unprofitable, carried higher gross margins this quarter, compared to the year-ago period, as the company did not cut its prices at any cost.

Tandem's quarterly revenues posted a slight increase to $435.7 million, up from $421 million a year ago.

Tandem said it completed the sale of UB Networks to Newbridge Networks for $100 million in cash, which will result in a modest gain in the second quarter.