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Dell stock up on Q4 results

The computer maker's 55 percent revenue jump boosts its share price.

Breaking new records, Dell Computer (DELL) stock gained nearly 10 points today after the company surprised Wall Street with stronger-than-expected profits and announced a stock split yesterday.

The stock continued to leap over its all-time highs this morning, reaching as high as 124-7/8 before ending the day at 122-3/4, up more than 8 percent over yesterday's close of 113-3/16. About 22.1 million shares traded hands, more than twice average daily trading.

The company's strong quarterly results caught the attention of analysts.

Bear Stearns analyst Andrew Neff upped his rating on shares of Dell to "buy" from "attractive," and raised his fiscal 1999 earnings estimate to $3.60 per share, from $3.35 per share, and established a fiscal 2000 estimate of $4.75 per share.

BT Alex. Brown analyst Philip Rueppel upped his fiscal 1999 earnings estimate on the company to $3.70 per share, up from $3.45. He said in a research report that Dell's outlook is strong, but noted its revenue growth has slowed.

Dell yesterday beat analysts' expectations and reported a 55 percent jump in fourth-quarter revenues, with strong international sales and a thriving consumer business contributing to the bottom line.

Dell's board also declared a two-for-one stock split, a move that comes as the company has seen its share price grow 35 percent since January. Dell shares gained 1-7/8 today on the news, ending at 113-3/16, up from yesterday's close of 111-5/16.

The PC manufacturer reported that its revenues increased 55 percent, to more than $3.7 billion, in the fourth quarter ended February 1, up from $2.4 billion in revenues reported for the same quarter a year earlier.

Net income grew to $285 million, or 81 cents a share, compared with profits of $188 million, or 50 cents a share, reported for the same period a year ago. Analyst had expected profits of 76 cents a share, according to First Call.

Dell attributed its continued growth to strong demand for products in Europe and Asia, despite Asia's economic turmoil. Direct sales from the company's Web site also was a major factor, generating about $4 million per day by the end of last year.

"We see a healthy industry in the year ahead," Michael Dell, the company's chief executive, said in a statement. "Major demand drivers, including processor transitions and component cost reductions, remain solid...The move to the Intel Pentium II processor to run modern business and consumer applications and the latest Microsoft (MSFT) operating systems, including Windows NT and Windows 98, is already well underway."

He noted that the Pentium II represented nearly 90 percent of Dell Dimension desktop revenues, and 70 percent of OptiPlex desktop revenues, at the end of the fiscal year.

Revenues in Europe were nearly $1 billion in the fourth quarter, up 61 percent year-over-year. Revenues advanced in Germany, with 64-percent year-over-year growth, as well as in France, with a 70-percent increase.

Dell managed to achieve profitability in the fourth-quarter in the Asia-Pacific region, which includes Japan. Revenues for that area exceeded $240 million, a 79-percent increase over the year-ago quarter.

In the Americas, fourth-quarter revenues were $2.5 billion, a 51-percent increase over the same quarter a year ago. Dell said its consumer business nearly doubled year-over-year, but the company did not break out the actual revenue from this segment. Dell previously had been focused on supplying computers to businesses, only recently expanding its efforts to focus on the consumer market as well.

Growth in notebook sales and enterprise systems sales also drove Dell's strong earnings. Notebook revenues grew nearly 74 percent, to $2.2 billion, and the company's enterprise systems business, which is made up of server and workstation product sales, also grew. Dell did not break out fourth-quarter results, but said revenues increased more than 250 percent on a year-over-year basis, exceeding $1 billion for the year.

The company's gross margins grew to 22.1 percent in the quarter, from 21.7 percent a year ago, and its inventory turns averaged the equivalent of 52 turns during the year, compared with 28 turns a year earlier.

Dell's stock split, the company's fifth during the last six years, will be paid in the form of a dividend to be issued on March 6, to shareholders of record as of February 27.

Revenues for full-year fiscal 1998 increased 59 percent, to $12.3 billion, while earnings per share for the year were $2.56. Net profits were $944 million for the year, up from $518 million the previous year.