Leading PC maker Dell Inc has topped Wall Street’s expectations by posting a 52% jump in quarterly profit on strong enterprise sales and growth in overseas markets.
It seems the Texas-based company is seeing returns on its strategy to focus on Europe and drop prices on low-end consumer machines while launching more expensive models.
The latest results have, at least, quelled investors’ concerns about Dell’s direct sales model being able to deliver profit growth. For the past two quarters, Dell’s results had disappointed as falling PC prices began to take their toll.
We intend to grow and we intend to take share, said chief executive Kevin Rollins, in a conference call. We’re not seeing any slowdown or any abnormal situation.
Rollins pointed out that Dell’s enterprise server business grew almost double that of its nearest competitor. There’s no concern at all about the model being disadvantaged, he said.
Dell shares jumped 6% to close at $31.96 on the Nasdaq following the results announcement.
However, when asked whether the company’s executive problems during the previous quarter had been resolved, Rollins said the company’s sales team could probably do a bit better. I would say we’re not yet hitting on all cylinders. There were no manufacturing missteps during the quarter, he said.
Profit for the fourth quarter rose $1.01bn, or 43 cents a share, from $667m, or 26 cents, a year ago. Revenue climbed almost 13% to $15.2bn from $13.5bn last year. There was an extra calendar week during Dell’s fourth quarter, which boosted revenue by roughly 2% to 3%.
For the quarter, analysts had hoped for 41 cents on revenue of $14.8bn.
Enterprise sales were a highlight of the quarter, growing 21% globally during the quarter. Sales of high-end notebooks and desktops also climbed 20%.
CFO James Schneider said the company saw a 47% unit growth in notebooks, on a roughly 25% spike in revenue. There’s a lot of pricing compression in notebooks and it’s a place we want to continue to grow, he said.
Revenue from outside the US hit a record 43% of total quarterly revenue, up from 33% a year ago.
Schneider singled out Europe as the company’s non-US growth engine. He said units shipped in the region grew 25% during the quarter, while revenue rose 18%. In particular, revenues in Germany rose 23% as the company grew its employees in the country by 50% during the period, he said.
Going forward, Rollins said Europe, in general, should grow in the 2x range compared to the US.
In China, units of Dell machines grew 28% in the most recent quarter, with strong profitability, demonstrating that the direct model can excel as well outside the US as it does in the US, Schneider said.
Looking ahead, the company guided for current-quarter earnings of 39 cents to 41 cents before items, which fell slightly short of analysts’ expectations of 42 cents. Dell pegged $14.2bn to $14.6bn in revenues, just shy of analysts’ $14.7bn forecasts.
Beyond the current quarter, chairman Michael Dell said the company is poised for greater enterprise revenue growth thanks, in part, to the upcoming Windows Vista operating system from Microsoft Corp.
Because Vista promises significantly improved user experience, the operating system would be a pretty powerful catalyst, Dell said.
Once this gets out in the hands of consumers in six to nine months, I think you’ll see a number of consumers coming back to the office and saying, How come my computer is no good, he said. We think there will be a consumer-led drive to upgrade the desktop in the corporate [market] sometime after Vista takes hold in the consumer space.
On the conference call with Wall Street analysts, the perennial rumor that Dell might enter into a deal with chipmaker Advanced Micro Devices Inc was raised.
Rollins reiterated that Dell does not have an exclusive supplier contract with Intel Corp, whose chips currently power all Dell machines. We’re always assessing new technologies. We’ve told the street, the analysts and our customers this, and we will continue to do that, he said. We have no exclusive arrangement with Intel.
When asked about potential downsizing at the company, Schneider replied, We’re growing our business, so layoffs are not something we’re thinking about.