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Direct gains for Dell

The company beats expectations for the second fiscal quarter and also declares a 2-for-1 stock split.

Dell Computer beat Wall Street expectations yesterday by reporting net income of $346 million or 50 cents per share for its second fiscal quarter, and also declared a 2-for-1 stock split.

In early trading today, Dell shares were up 8.625--nearly 8 percent--at 118.1875. The stock has traded as high as 118.25 and as low as 35 during the past 52 weeks.

The financial results confirm the direct vendor's position in the industry as the company that can do little wrong. While other major PC makers have posted relatively flat revenues and earnings, Dell saw its revenues climb 54 percent to $4.3 billion in its most recent quarter.

Its earnings shot up 72 percent, from $214 million in the same period last year to $346 million this year. Gross margins increased from 22.2 percent to 22.7 percent.

Dell also saw unit shipments grow at more than five times the market rate for the calendar quarter, according to market research firms.

Analysts predicted that the company might exceed the consensus figure of 46 cents a share, but only by a cent or two. "I don't expect ten percent or anything," said one. Dell beat the figure by 8.7 percent.

The surge of recent activity has handed Dell a chance to challenge Compaq Computer's supremacy in the U.S. market, according to Scott Miller, an analyst at Dataquest.

"Sustained growth and solid performance across all segments and regions continue to underscore the strength and efficiencies of our direct business model," said company chairman Michael Dell in a prepared statement. "We believe that our performance positions us as No. 1 in profitability, revenue growth, and unit growth among major systems vendors worldwide."

The stock split, Dell's sixth, will be paid in the form of a stock dividend to be issued September 4 for shareholders as of August 28.

The company showed very few weaknesses for the quarter. In the United States, Dell saw its unit shipments grow much faster than the other major vendors, most of which were saddled with the burden of selling off excess inventory.

Because of the inventory situation, Dell and Compaq roughly shipped about the same number of PCs out the door in the second calendar quarter, according to Dataquest and others.

As for product segments, Dell saw notebook revenue grow 84 percent and revenue in "enterprise" segments, a Dell-created revenue category which includes servers and workstations, grew by 100 percent.

"Moving into the second half of the year, key industry conditions including demand, component cost declines and pricing remain healthy, and consolidation continues to occur around the leading systems companies," continued Dell. "We believe we are well positioned to capitalize on these conditions to further our growing market leadership position."

Overall revenue for the Americas grew by 50 percent, the company said. In Europe, Dell moved into the No. 2 spot for overall number of units shipped, according to the company. European revenues grew 73 percent, while in five countries revenue grew 100 percent.

Despite regional economic woes, Asia also turned out to be a bright spot. Dell's revenues increased 34 percent across the region to $280 million.

"The goose that lays the golden egg lives on," Ashok Kumar, analyst with Piper Jaffray, wrote in a report. "Our checks indicate that sell-through momentum continues to remain strong in the October quarter. As the second half is seasonally strong, we believe that the company should be able to expand its 8.9% worldwide share recorded in the second quarter."