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Dell Beats Profit Forecasts, Helped by Lower Costs

CNBC.com
Friday, 31 Aug 2007 | 10:44 AM ET
Dell Optiplex GX620 desktop
AP
Dell Optiplex GX620 desktop

Dell reported preliminary second-quarter earnings of 35 cents a share on sales of $14.8 billion Thursday, topping expectations as it benefited from lower costs for disk drives, microprocessors and other components.

But the company also said it expected component cost declines to slow in the second half, crimping profits, and it delayed any stock buybacks until after it files overdue financial reports with securities regulators.

Analysts expected Dell to report a profit of 31 cents a share on sales of $14.63 billion, according to a consensus compiled by Thomson Financial. Full-year estimates stand at $1.34 a share on a topline of $60 billion.

"It sounded like an overall solid number," Chuck Jones, technology analyst at Atlantic Trust, told CNBC. "Given HP's beat on the bottom line and the margin expansion they had in the PC business, (35 cents is) not too unexpected. But 35 cents, again, is a good number for them."

Shares of Dell , which closed at $28.46 Thursday, rose less than 1 percent Friday.

Dell said component cost declines may slow in the second half, hurting profitability.

Dell said the figures were preliminary because it is restating some prior periods following a year-long accounting audit that concluded this month.

Dell, which announced a 10 percent staff cut in May, said it would continue to cut jobs as part of its cost-reduction efforts.

Dell's profit was reduced by $102 million, or 3 cents per share, due to payments to its former CEO and 400 employees for stock options that could not be exercised during the company's internal audit, which found that executives adjusted accounts to meet financial targets.

Dell's fiscal second quarter net income, including those items, increased to $733 million, or 32 cents per share, from a reported $502 million, or 22 cents per share, a year earlier.

The company also recorded $59 million, or 2 cents per share, for costs related to the audit investigation.

Dell, like competitors HP and Apple, profited from lower costs for computer components amid a supply glut. But profit was reduced by payments to its former CEO and 400 employees for stock options that could not be exercised during the company's internal audit, which found that executives adjusted accounts to meet financial targets.

Can Dell Deliver?
It's been an eventful quarter for Dell, but can it deliver for the Street? CNBC's Jim Goldman & Herb Greenberg discuss what's next for Dell.

Investors have intensely anticipated Dell earnings to see if the PC maker is overcoming a hodgepodge of complications that have plagued the company and seen it lose its leadership role to HP.

An accounting scandal, a management reshuffle and an attempt to develop a retail channel sales model in addition to its direct sales left market watchers intensely curious about the former PC sales leader's second-quarter earnings, due after markets close Thursday.

Dell will not hold a conference call following its earnings report and has been reticent of late about giving equity analysts or the news media any indication about its financial prospects, reported CNBC's Jim Goldman.

Dell shares trade at about 21 times expected 2007 earnings per share, compared with HP's multiple of 17 and Sun Microsystems'38.

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