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Dell meets Street on shipments surge

The PC maker shows an increase in unit shipments as it reports that its second-quarter earnings rose 26 percent.

Dell reported on Thursday that its second-quarter earnings rose 26 percent, meeting analyst expectations, thanks to increases in unit shipments.

Dell reported net earnings for the quarter of $621 million, or 24 cents per share. Revenue for the quarter, which ended Aug. 1, was $9.8 billion, figures Dell said were its best to date. During the same period a year ago, Dell reported earnings of $501 million, or 19 cents per share, on revenue of $8.5 billion.

Analysts expected the Round Rock, Texas, PC maker to log a profit of 24 cents a share on revenue of $9.8 billion, according to a survey by earnings tracking firm First Call.

"We've again shown Dell's unique ability to profitably earn a larger share of business by focusing on standards-based technologies, managing costs and creating value for customers," Dell President Kevin Rollins said in a statement.

Dell increased its market share during the second calendar quarter, continuing a string of quarterly increases. Its unit shipments grew by 28.9 percent, giving Dell the largest share of the market at 17.8 percent, according to IDC.

During its second fiscal quarter, Dell said it increased shipments by 27 percent year over year. Desktop PC unit shipments rose by 25 percent, while server shipments grew by 27 percent. Its notebook shipments were up 37 percent, the company said.

But some analysts believe Dell could have turned in a larger profit if it hadn't been for rising memory costs. Dynamic random access memory (DRAM) prices have been creeping up over the past couple months, several analysts said this week, increasing costs for the company.

Despite this increase, component costs fell in general in the quarter, executives said.

"We actually saw component costs on an overall basis continue to decline during the second quarter, albeit at a slower rate that we saw in other quarters," Jim Schneider, Dell's chief financial officer, said during a conference call. "We had a memory price increase during this last quarter?but it really didn't have a big impact on our quarter."

Component cost decreases, which had been as much as 1 percent to 2 percent per week in past quarters, are likely to slow down to about a half of a percent per week during the third quarter, Schneider said.

But over the long haul, analysts expect Dell to manage the increases in DRAM costs, even if they limit the company's profitability, by shifting its PC configurations and by continuing to expand into higher-profit products like servers and adjacent businesses, including information technology services, printers and consumer electronics.

Over the long haul, analysts expect Dell to manage any cost increases for DRAM or other components by offsetting them with measures such as shifting PC configurations.

Schneider and Rollins pointed out that the company has continued to cut costs in areas such as manufacturing while expanding into areas such as servers and services, which bring higher average profits. Dell is also moving into adjacent businesses such as printers and consumer electronics.

In Dell's consumer electronics business, many of the products it sells are manufactured by third parties. But Rollins said music products and LCD TVs were of particular interest to the company, hinting that Dell may be looking at bringing out its own products in those categories.

The company's outlook for its third fiscal quarter matched the expectations of analysts polled by First Call. Dell said it expects shipments to increase by 25 percent or more, resulting in a third-quarter profit of 26 cents per share on revenue of $10.5 billion.