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Dell reaffirms outlook, trumpets success

The PC maker remains confident of its previous outlook for the second quarter and says it's winning the price war.

Dell Computer reaffirmed its previous earnings outlook for the second quarter Thursday, ahead of its annual meeting with shareholders.

Dell expects to see sales at around $7.6 billion, with earnings of about 16 cents per share, excluding a previously announced charge. The company now expects that charge, which is related to job cuts, consolidations and writing down certain assets, to be around $700 million.

First Call consensus for the second quarter called for earnings of 16 cents per share on sales of $7.7 billion. The company told analysts in May to trim their estimates for the second quarter to reflect an ongoing PC price war and an economic slowdown.

"We view today's announcement as good news as it indicates the company is able to achieve their forecast in this environment," said Merrill Lynch analyst Steven Fortuna. "We feel that the company could have done even better than this had it not been for weakness in Europe."

CEO Michael Dell said in a release that the company is offsetting a "somewhat softer industry" by cutting operating expenses faster than it had originally planned.

During the conference call of its 2001 Annual Meeting of Stockholders, the CEO trumpeted the company?s success against its competitors.

?We?re winning the price war,? Dell said, citing costs that are now 50 percent lower than the competitors?.

Dell also said the company has lowered expenses faster than Hewlett-Packard and is faring much better than Compaq Computer, which actually raised expenses by 22.5 percent.

The computer maker, which has been moving aggressively into the storage and server market as the PC industry has faded, is faring better than competitors because it is taking ?the profit pool approach,? the CEO said. Dell is going after areas of business where it can turn a profit, unlike other companies that subsidize money losing parts of their business, he explained.

The CEO also said the company will be continuing its share buyback plan. Under the plan, Dell has repurchased shares at an average price of $9 a share.

Just about every tech company has been hurt by the sluggish economy. Recently, Dell competitor Compaq announced it was cutting more jobs and said sales for its second quarter would come in below analysts' expectations. HP told its U.S. employees to either take additional vacation time or face a pay cut of up to 10 percent.

Dell Computer
Stock price from July 2000 to present.  
Source: Prophet Finance
Last month, Wall Street analysts took an ax to their estimates for several PC companies, including Dell, saying they didn't see much hope of strong PC sales to come. Fortuna recently cut his global PC unit growth estimate from a 2 percent decline to a 7 percent decline.

Dell will formally announce second-quarter results Aug. 16.

Dell said the company expects to hold the leading share position in the U.S server market for the second straight quarter, in the second quarter, and is closing in on the top global spot in servers.

On Wednesday, the company said it would begin selling network switches to small and medium-sized businesses in its third fiscal quarter, beginning in August. It will market the switches under the brand name PowerConnect.