Dell Quarterly Profit Falls; Results Short of Forecasts

Dell posted a lower-than-expected quarterly profit and cautioned that customers may rein in spending, sending its shares lower in extended trading.

Net income in the three months ended Feb. 1 fell to $679 million, or 31 cents per share, from $726 million, or 32 cents per share, a year earlier. Revenue rose to $16 billion from $14.5 billion.

Dell earned 34 cents per share, excluding costs for jobs cuts, research, legal expenses and other items, according to Reuters. But there was disagreement about the non-GAAP earnings number, which is calculated by factoring in the many one-time items Dell reported in the quarter.

Analysts expected profit on that basis of 36 cents per share and revenue of $16.3 billion, according to Thomson Financial.

Shares of Dell regained some of that ground and were about 3.2 percent lower in electronic trading. The shares finished regular trading hours with a gain of 0.48 percent at $20.87.

"The top line is a little disappointing, but delving further into the numbers, the gross margins were better than anticipated,'' said Kim Caughey, senior analyst with Fort Pitt Capital Group, which manages $1.2 billion including shares of Dell.

Gross profit margin widened to 18.8 percent from 18.5 percent in the third quarter. But operating margin narrowed to 4.9 percent from the third quarter's 5.3 percent, as costs rose.

Dell said it would "continue to incur costs as it realigns its business to improve growth and profitability,'' efforts that may "adversely impact'' near-term results.

Dell said revenue from laptop computers rose 24 percent in the fourth quarter from a year ago and revenue from server computers and data storage gear each advanced 2 percent. Desktop computer revenue rose 2 percent.

Gross profit margin widened to 18.8 percent from 18.5 percent in Dell's fiscal third quarter. But operating margin narrowed to 4.9 percent from the third quarter's 5.3 percent, as costs rose.

Dell has cut a net 3,200 jobs of 8,800 reductions planned and sees cost savings in the multibillion-dollar range in its current fiscal year, Chief Financial Officer Don Carty said.

The computer maker so far has eliminated 5,300 positions but hired 2,100 people since it announced a 10 percent work force reduction in May 2007, Carty told Reuters in an interview after Dell reported lower-than-expected fiscal fourth-quarter results.

"We will get to the 8,800," Carty said, adding that Dell expects one-time costs from the job cuts "that might leave us with a little bit more volatility in the next quarter or two."

Carty also said the company had seen "a little bit of holding back" among U.S. financial services clients.

Dell, based in Round Rock, Texas, is more dependent than Hewlett-Packard and International Business Machines on the United States, which many economists believe is in or near a recession and where consumer and corporate spending on technology is expected to slow this year.

Dell in the third quarter earned 54 percent of its revenue in the United States, while HP and IBM each generate about two-thirds of revenue abroad.

"This report does not give me any confidence yet about their ability to compete with HP,'' Caughey said.

Dell, which built its business on selling computers directly to customers, has been expanding into retail to better compete with rivals, notably HP, the world's No. 1 PC vendor since ousting Dell from that spot in 2006.

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