Dell hits 3Q targets but questions remain

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Dell Computer met analysts' estimates in its third quarter, earning $674 million, or 25 cents a share, on sales of $8.26 billion.

First Call Corp. consensus expected the PC maker to earn 25 cents a share in the quarter.

Ahead of the earnings report, Dell (Nasdaq: DELL) shares closed off $1.94 to $28.38.

The $8.26 billion in sales represents a 22 percent improvement from the year-ago quarter when it earned $483 million, or 18 cents a share, on sales of $6.78 billion.

Most analysts were predicting sales of between $8 to $8.5 billion in the quarter.

USB Piper Jaffray analyst Ashok Kumar predicted Dell would earn 24 cents a share on sales of $8.4 billion ahead of the results.

Other analysts pegged it for around $8.2 billion, a 7 percent improvement from the second quarter when it pocketed $603 million, or 22 cents a share, on sales of $7.7 billion.

Company officials said sales of its servers and notebook computers increased 40 percent in the quarter.

"Our worldwide shipments of servers and notebooks grew significantly faster than the overall industry rate," said CEO Michael Dell in a prepared release. "We added more than a point of market share and moved closer to the No. 1 ranking in both product categories."

Ahead of the earnings report, Banc of America Securities analyst Kurt King predicted Dell would lower its guidance through fiscal 2001.

"It’s already a given that tonight management will guide down numbers for next year; we've already reduced 2002 revenue growth to 23 percent and EPS to $1.15 and don’t expect much change from here," King said in a research note. "Dell knows the task at hand is to set the bar low enough to allow for revenue upside going forward."

King also said Dell was discounting PCs to inflate its third-quarter numbers.

"We saw signs of Dell trying to juice revenue numbers toward quarter-end, which are causes for some concern," he said in the research note.

CFO James Schneider told analysts to expect sales of $32 billion for the full year 2000.

"What we are seeing is full year revenue of $32 billion, which is similar to what we've said,"Schneider said.

He added that weakness of European currencies was already factored into the guidance for the fourth quarter.

Sales into the Americas improved 24 percent in the quarter while the Asia-Pacific and Europe/the Middle East and Africa regions posted 39 percent and 7 percent, respectively.

Earlier in the quarter, Dell warned that sales into Europe would dent its top line this quarter.

Gross profit margins in the quarter rose to 21.3 percent.

Dell shares moved up to a 52-week high of $59.69 in March before falling to a low of $22.06 in October.

Twenty-one of the 27 analysts tracking the stock maintain either a "buy" or "strong buy" recommendation.

Analysts are looking for a profit of 92 cents a share in the fiscal year.