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Dell numbers surpass expectations

With server sales capturing a larger share of revenues, Dell posts second-quarter results that beat expectations.

Dell Computer (DELL), which saw its server sales capture a larger portion of revenues, today posted second-quarter results that beat expectations.

The mail order computer maker Dell at a glance reported net profits of $214 million, or 59 cents per share, up from $103 million, or 26 cents per share, a year ago.

Wall Street had expected earnings of 54 cents per share, according to First Call.

Revenues, meanwhile, rose to $2.8 billion in the quarter, which ended August 3, compared with $1.7 billion a year ago.

Dell's server sales accounted for 8 percent of total system revenues, up from 3 percent a year ago and a slight rise from 6 percent in the previous quarter.

Sales from entry-level to high-end servers contributed evenly to the company's overall performance.

But desktop sales, which still comprise the bulk of system sales, have steadily lost their ground to other product lines. Desktop sales fell to 73 percent of total system sales from 80 percent a year ago and 74 percent in the previous quarter.

Dell also racked up $2 million a day in sales from its Web site.

Industry analysts applauded Dell's performance.

"Dell is overall a phenomenal company. They're still producing enormous growth," said Matt Sargent, industry analyst with Computer Intelligence.

Dell has been a steady earner for the past three years. The company recovered from a loss of 14 cents per share in 1994 to post gains of 43 cents per share in 1995, 67 cents per share in 1996, and $1.39 per share in 1997. Wall Street currently expects 1998 earnings of $2.33 per share, and $2.98 per share in 1999.

Analysts credited Dell's position in the direct market with much of the company's success.

"They haven't had to deal with the channel issues or inventory management, and their mode of manufacturing has been stable," said independent analyst Richard Zwetchkenbaum. "Meanwhile, other manufacturers have had to make their businesses more 'direct-like.'"

Dell has vied with Gateway2000 for top market share in the direct vendor market. Dell was second to Gateway in direct vendor market share in 1994 and 1995, and captured the No. 1 spot last year with 21.6 percent, according to Computer Intelligence. Analysts view Dell's increased focus on the corporate market, as opposed to the consumer one, as its best weapon against direct vendor competitors.

Dell ranks fourth among worldwide PC vendors, behind Compaq Computer, IBM, and NEC and followed by Hewlett-Packard, according to Computer Intelligence. For the domestic market Dell ranks second, behind Compaq and ahead of IBM and Packard Bell.

Looking to the future, analysts will be watching to see the effect of Dell's entry last month into the workstation market.

"Fundamentally, there's not anything exciting about the workstations themselves, but it's actually the right thing for Dell to be doing. Dell's formula for success is taking a reasonably established market where people understand what they want to buy and selling it more effectively than anyone else," said Peter ffoulkes, workstation analyst with market research firm Dataquest, in an earlier interview.

With its workstation, Dell will go head-to-head with manufacturers including Compaq, IBM, Gateway 2000, Hewlett-Packard, Intergraph, and Micron.