Samsung Event: Everything Announced Disney Plus Price Hike NFL Preseason Schedule Deals on Galaxy Z Fold 4 Best 65-Inch TV Origin PC Evo17-S Review Best Buy Anniversary Sale Monkeypox Myths
Want CNET to notify you of price drops and the latest stories?
No, thank you

Dell beats estimates by a penny

The computer maker exceeds expectations for its fiscal first quarter on stronger-than-expected sales. But despite market share gains, it gives a conservative forecast for the future.

Dell Computer beat expectations for its fiscal first quarter on stronger-than-expected sales. But despite its recent market share gains, the PC maker gave a conservative forecast for the future.

The company announced after market close Thursday that it turned a profit of $457 million, or 17 cents per share, on revenue of $8.1 billion for the quarter, which ended May 3.

Analysts had been expecting a profit of 16 cents per share and revenue of $7.86 billion for the quarter, according to First Call.

Dell said in April that sales had been better than expected for the first two months of the quarter. At that time, it increased its revenue expectations, saying revenue would likely be down only about 2 percent, reaching about $7.9 billion, versus its earlier prediction of a 3 percent to 5 percent revenue decline.

While first-quarter revenue turned out slightly higher year over year, Dell said it increased worldwide product shipments by 13 percent. In the United States, shipments rose 17 percent and revenue inched up 3 percent.

For the same period last year, Dell reported a profit of $462 million, or 17 cents per share, on revenue of $8 billion.

"Our objectives are simple and unchanged: to further reduce costs; to deliver great value to customers, particularly enterprise customers; and to profitably gain market share," Kevin Rollins, president and chief operating officer at Dell, said in a statement. "We're continuing to make good on all three commitments."

During the quarter, Dell's average selling price increased by $70 to $1,770 from the first quarter after falling for several quarters. The increase reflects some short-term rises in the cost of components, Rollins said during a conference call after the earnings release. But he argued that the rising average price was primarily due to a higher mix of notebook PCs and servers, which are both more expensive than traditional desktop PCs.

The company's outlook for its second fiscal quarter is guardedly optimistic.

Dell forecasts industrywide unit shipments will fall about 5 percent from the first quarter. But its revenue could increase as much as 8 percent year over year to $8.2 billion, the company said, with a resulting profit of about 18 cents per share.

First Call analysts have been expecting Dell to get through the second quarter with per share earnings of 17 cents on revenue of $8 billion.

Dell's guarded optimism comes more from its own ability to cut costs than from a more widespread PC industry recovery.

The company has seen "firming" in some areas of the world, but it falls short of a resurgence, Rollins said in a conference call with reporters. Dell's first-quarter gains came mainly from cost reductions and increases in market share against competitors, he said.

"We've seen in the U.S. some modest stabilization," Rollins said. "I don't think we're quite to the point where we're suggesting there's been a turnaround."

Although Dell is well positioned to continue to gain market share this year, the Round Rock, Texas-based company remains vulnerable if growth in its core markets--the United States and Europe--remains slow for longer than expected, according to some analysts.

"Despite its international expansion, current PC replacement cycles are likely to deliver only single-digit revenue growth or possibly even declines in the coming years due to the saturation of the U.S. market, as well as Eastern Europe, the United Kingdom and Japan," said Brooks Gray, an analyst at Technology Business Research. "The quandary Dell is challenged with is how to generate future growth."

Beefing up business
To overcome slowing PC growth, Dell has been expanding into services, storage, and products that are closely related to PCs such as switches and projectors. The company has begun expanding its service offerings, which now make up about 10 percent of revenue, with new offerings for both businesses and consumers. It has also been entering new product categories, including network switches and, more recently, projectors. And the company is evaluating other categories, including printers and, some sources say, handheld devices.

Dell launched an in-home PC installation service for its U.S. consumers earlier this month. Earlier this week, it launched the 3100MP digital light projector. The machine, aimed at small and large businesses, sells for significantly less than competing products. Dell uses lower prices as a strategy to quickly gain market share in a new market.

The company has also been looking closely at the printer market, which it could enter by partnering with a third party such as Lexmark. The company currently resells Lexmark and HP printers but has hinted it may become more involved in marketing these products.

But Gray warns that it could take some time to see a real impact on Dell's bottom line from these new markets.

"I think (Dell) will still excel over the competition in the PC market," Gray said. "But to get to a point where these (extras) will have significant impact will take awhile."