Tech Industry

Sunny Dell sees a profit

Rising unit sales propel the computer maker to revenue of $8.46 million--slightly better than the company or analysts predicted.

Dell Computer reported on Thursday slightly higher-than-expected revenue for its second quarter and predicted better things to come.

The computer maker recorded a profit of $501 million, or 19 cents per share, on revenue of $8.46 billion for its second fiscal quarter, which ended Aug. 2. The company had no charges for the quarter. During the same period a year ago, Dell posted a loss of 4 cents per share including charges.

A consensus of analysts polled by First Call expected the company to post a profit of 19 cents per share on revenue of $8.28 billion.

Most major PC manufacturers are losing money and are seeing a decline in market share, but Dell is expanding. And the company predicts that the growth will continue. PC shipments for the industry as a whole will likely be the same or up slightly from the second quarter to the third--a usual seasonal phenomenon, executives said. Dell's shipments, however, could increase by 5 percent or more sequentially. As a result, the PC maker said it expects to record profit of 20 to 21 cents per share on revenue of $8.9 billion in its third quarter.

The financial results, to some degree, were anticlimactic. The company announced on July 11 that it expected to post a profit of 19 cents per share for the quarter on revenue of $8.3 billion, up from an earlier estimate of 18 cents per share on revenue of about $8.2 billion.

The unexpected increase in revenue to $8.46 billion stemmed from higher unit sales, especially to corporate customers, Dell said. Dell's total unit shipments for the quarter were up 5 percent from the first quarter and up 18 percent year over year, the company said, while the average selling price of a Dell computer held steady at around $1,770.

The company increased its server shipments by 18 percent year over year, it reported, while workstation shipments were up 24 percent and notebook shipments grew by 17 percent.

Dell executives also reaffirmed that the company will enter the printer and PDA markets.

"We're looking at both inkjet and laser products and we fully recognize that the vast majority of the profit of printers is in the consumables," CEO Michael Dell said on a conference call. "You'll be hearing from us later--it's not the right time to do it now--but stay tuned." Consumables include items such as ink cartridges.

Meanwhile, the company is also studying the PDA market.

"It's an attractive market," said Dell. "There is some standardization going on and you'll see us entering this market, just as we enter many new markets."

Still, Dell considers itself more of a servers, storage and IT services provider than a printer or PDA maker.

"While you may see us enter the printer or PDA market--actually you will see us, so we'll get that out of the way--those are going to be relatively small portions of Dell's business in the near term," Dell said.

Also on the call, Dell executives said they would consider offering dividends if tax laws were to change.

Overall, Dell executives said they are optimistic about the company's progress in market-share growth and about its cost-cutting strategies. Increasing unit sales while reducing costs will allow the computer maker to continue to be profitable in future quarters, they said.

So far, the company is ahead of schedule on its initiative to cut $1 billion in costs, thanks to a drop in manufacturing and warranty costs, executives said.

Dell has been able to trim down the per-box cost of manufacturing computers in its U.S. factories by 18 percent more than it originally expected, said Kevin Rollins, Dell's chief operating officer. The PC maker re-invests some of those savings by offering lower prices on products, but the rest goes to enhance its profitability.

Dell is also cautiously eyeing a PC market recovery in some areas, but so far the company hasn't seen an increase in activity from large corporations. Consumers, small businesses and government customers have made up most of its sales recently.

"We're really pretty hopeful and feeling pretty good about the consumer business...going into the...back-to-school season," Dell said.

"We've seen some bright spots, but they have been in pockets," he added. "We haven't seen an overall uptick across the board."

Meanwhile, Dell's component costs have held steady or declined for the company.

"The DRAM (dynamic RAM) market has been more rational, and there's definitely some softening going on in LCD" prices, Dell said. Lower liquid-crystal display prices help Dell keep prices down for its flat-panel displays and reduce its cost for manufacturing notebooks.

At the close of regular trading, Dell shares were down one cent to $27.14.