Dell follows HP with upbeat earnings

The number two PC maker impresses the market with better than expected profits.

Dell

Dell has reported positive third quarter earnings despite the poor economic situation in most of its core markets.

The company has waged an aggressive campaign to control costs, cutting operating expenses by 11 per cent from last year. Gross margin rose to 18.8 per cent from 17.2 per cent.

Net profit in the fiscal third quarter ended 31 October fell five per cent to $727 million 9478 million), from $766 million (503.9 million) in the year-ago period.

Revenue in the period fell three per cent to $15.16 billion (9.97 billion), below the average analyst estimate of $16.3 billion (10.72 billion). Unit shipments rose three per cent.

"We're clearly choosing profit over growth, but we also believe the changes we're making to our cost structure will allow us to achieve both over time," chief executive Michael Dell said on a conference call with analysts.

The unexpectedly strong results follow an upbeat interim results announcement from HP earlier in the week and cheered Wall Street, although some worried about a revenue drop, and the after-hours share rise was close to the size of the drop during regular trade.

"It was certainly a surprise and what this shows is that cost-cutting initiatives are beginning to take effect," said Bill Kreher, a technology analyst at Edward Jones. "The slowdown in PC demand affected laptop sales and thus revenue."

The company said it saw strength in Asia and emerging markets, while Western Europe and the US continued to be slow. Commercial revenue in the Americas fell eight per cent, and five percent in Europe.

The company acknowledged that it faced a "challenging" demand environment. Many analysts see Dell as vulnerable to the global economic slowdown due to the company's sizable exposure to a weakening PC market. Its share of global personal computer shipments slipped below 14 per cent in the calendar third quarter, according to IDC.

And despite success on the bottom line, the revenue decline worried some.

Shannon Cross of Cross Research said, "It's all cost-reduction, and it seems like they walked away from selling lower-margin products...It's going to be a challenge for companies (like Dell) to cut costs as fast as sales have fallen off."

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