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By JESSICA MINTZ, AP Technology Writer Jessica Mintz, Ap Technology Writer
Thu Nov 18, 8:00 pm ET
SEATTLE Personal computer maker Dell Inc. said Thursday that its net income
for the latest quarter more than doubled as companies spent more to replace
aging technology.
Dell's earnings topped Wall Street's expectations, and investors drove its
shares up almost 5 percent after the results were announced.
Businesses of all sizes, plus government agencies and other public-sector
customers, spent more with Dell in the quarter. Large-enterprise revenue jumped
27 percent to $4.3 billion from a year ago, and small-and-medium-business
revenue rose 24 percent to $3.7 billion.
While networking gear maker Cisco Systems Inc. recently reported unexpectedly
slow growth in new orders from government customers, Dell said public-sector
revenue rose 20 percent to $4.4 billion. However, Dell's business with federal,
state and local government accounts for just 9 percent of the public-sector
business and 3 percent of the company's overall revenue.
Revenue from consumers, Dell's smallest customer segment in the quarter,
increased 4 percent to $3 billion.
In an interview, Dell Chief Financial Officer Brian Gladden said the company
expects to see similar "muted" growth through the holiday shopping quarter.
Desktop and laptop computers made up about 56 percent of Dell's revenue in the
quarter. PCs are less profitable than Dell's technology consulting services and
other smaller slices of Dell's business, but the company still managed to
improve gross margin a measure of profitability. Dell said lower component
costs helped margins in the quarter, as did "pricing discipline" not cutting
prices too deeply to attract buyers and improvements in the supply chain. The
company said it also passed on some deals that could have hurt margins.
For the current fourth quarter, Dell indicated that gross margin would not be
as strong. During a conference call with analysts, Gladden said less-profitable
consumer PCs would make up more of the computers sold in the quarter. He also
said component prices were bottoming out, and wouldn't provide as much of a
lift.
Analysts came back with question after question seeking more details about
margins.
"They did a good job. I'm not taking any credit away from that," said Kaufman
Bros. analyst Shaw Wu in an interview. But, he added, "a lot of the
supply-chain efforts have been ongoing for several years. All of a sudden, it
is somewhat confusing that they show up this quarter." Wu also questioned the
effect of one-time accounting gains had on profitability in the quarter, in
addition to the reasons Dell cited.
Rodman & Renshaw analyst Ashok Kumar was left wondering what level of gross
margin to expect from Dell in the future.
"A lot of us are skeptics out there. Clearly the margin they delivered was
good, but it's not sustainable by any measure," Kumar said.
For the fiscal third quarter, which ended Oct. 29, Dell's net income jumped to
$822 million, or 42 cents per share, from $337 million, or 17 cents per share.
Excluding a $72 million gain related to Dell's failed bid to buy data-storage
maker 3Par and other items, Dell earned 45 cents per share.
Analysts surveyed by Thomson Reuters expected Dell to earn much less 32 cents
per share.
Revenue jumped 19 percent to $15.4 billion from $12.9 billion, slightly less
than the $15.8 billion analysts predicted.
For the full fiscal year, which ends in January, Dell said it expects revenue
around the midpoint of its earlier guidance for an increase of 14 percent to 19
percent from last year. That would put fiscal 2011 revenue at about $62
billion. Analysts are currently predicting $62.4 billion.
Dell also said it expects businesses will continue to upgrade computers as they
switch to Microsoft Corp.'s latest PC operating system, Windows 7, and other
new software.
Gladden also shot down rumors that Dell is planning to go private.
Shares of Dell, which is based in Round Rock, Texas, rose 64 cents to $14.30 in
extended trading. Earlier in the day, Dell shares added 31 cents, or 2.4
percent, to close at $13.66.