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Dell reports strong global growth

The computer maker reports earnings growth of 60 percent for its first quarter, as its business increased across all geographic regions.

Dell Computer reported earnings growth of 60 percent for its first quarter, as its business increased across all geographic regions.

Net earnings for the first fiscal quarter ending May 3 were $305 million, or 44 cents a share, beating First Call's consensus of analysts' expectations, which pegged the earnings at 42 cents a share. The computer maker posted net income of $198 million, or 27 cents a share, for the same period last year.

Despite beating expectations, Dell missed the "whisper" number and its stock fell in after-hours trading, dropping 3.34 to 91.25 after closing at 94.59. Dell's stock has appreciated about 120 percent since the beginning of the year.

Revenues increased to $3.9 billion, up 50 percent from the $2.6 billion reported a year ago, as the company experienced strong global growth.

Dell said that worldwide sales generated via the Internet exceeded $5 million per day during the quarter, compared with online sales of about $1 million a day during the first quarter of last year.

U.S. revenue increased 50 percent to $2.6 billion, led by gains in sales to consumers and to corporations. Revenue from Europe grew 62 percent to more than $1 billion, while revenue from the Asia-Pacific region climbed 35 percent to $269 million as profits expanded.

Gross margins improved to 22.3 percent from 21.6 percent.

While the company reported record revenue and a jump in earnings for the quarter, growth appears to have slowed in some of the company's product lines.

For example, Dell said sales of desktop computer systems continued to be strong during the quarter, with revenue increasing 40 percent. But last year, its desktop business grew more than 60 percent over the year-ago quarter.

Revenue from its enterprise-level products--the PowerEdge network server and Precision workstation product lines in particular--increased 177 percent over the same quarter last year. For the same quarter a year ago, year-over-year unit sales grew nearly 350 percent.

"Year-over-year comparisons are getting so difficult because of strong performance in the previous quarter," said T.R. Reid, a Dell spokesman. "And year-over-year will be more challenging because each year we are raising the bar. Tough comparisons should continue [because of the strong results Dell had for each quarter last year]."

Enterprise-level products represented 11 percent of revenue, compared with 6 percent of revenue a year ago.

"Dell's desktop business is strong and the revenue per unit is stable," Reid added. For the current quarter, the average revenue per unit was $2,475, about 10 percent off of last year's figure, when the average revenue per unit was $2,713. The figure encompasses all types of systems, he said, including desktop computers, notebooks, servers, and workstations.

"The cost of computing continues to come down," said Reid, noting that users typically are buying more computer horsepower for about the same amount of money, instead of buying a less expensive machine.

But analysts say another reason for the slower growth rates is that component prices also are coming down, which means that Dell needs to sell more units in order to make the same amount of money.

An analyst in the DMG Technology Group said there has been a decline in average selling prices, which will impact revenue growth.

"The prices of the components are going down, which affects the base price of the computer," he added, noting that microprocessor costs are decreasing every year and that memory also is cheaper than it was a year ago.

In order to keep the average price per unit up, Dell has to sell more computers to each customer, meaning that it needs users to purchase, for example, a faster processor, more memory, or a larger monitor.

"Prices have come down and the costs [for the bells and whistles] hasn't gone up fast enough to compensate," the analyst elaborated. He said, however, that when Windows 98 comes out, there should be an increase in average selling prices.

The analyst also pointed out that, as a company grows, growth has to slow eventually because the base is so large. He said that is likely what is happening with Dell, noting that the company is "very solid."

Revenue from Dell's Latitude and Inspiron notebook lines bucked the downward trend in year-over-year growth, though, growing 87 percent over the prior-year period, compared with growth of about 70 percent a year earlier.

One reason for the growth is that Dell now has two different lines of notebook computers for two different types of users, according to Reid.

"With two lines of computers, you can better meet the needs of those customers," he said. "This is one area of focus for us. Dell has been lower than the industry average previously [in notebook sales], and we are making a concerted effort to change that."

The Inspiron line was introduced during the third quarter of last year, Reid added. "We are seeing some of the fruit from that."