Dell profit misses estimates, shares fall
SAN FRANCISCO (Reuters) - Dell Inc (DELL.O), the world's second-largest personal computer maker, on Thursday posted a lower-than-expected quarterly profit and cautioned that customers may rein in spending, sending its shares 4 percent lower.
Dell said it would continue to incur costs as it realigns its business to improve profitability, which may "adversely impact" near-term results.
Net income in the three months to February 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. Analysts expected profit on that basis of 36 cents per share and revenue of $16.3 billion, according to averages on Reuters Estimates.
"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 is more dependent than Hewlett-Packard Co (HPQ.N) and International Business Machines Corp (IBM.N) 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 last year abandoned a long-standing direct-only sales model and started selling PCs in retailers including Wal-Mart Stores Inc (WMT.N) and Best Buy Co (BBY.N) in North America, Carrefour SA (CARR.PA) in Europe and China's GOME Electrical Appliances Holding Ltd (0493.HK).
Founder Michael Dell retook the helm in January 2007, after a string of disappointing results under his predecessor. Dell in 2006 lost the top-PC-seller ranking to HP, which sold more laptop computers and printers in stores.
Dell also said in November its near-term results could be "adversely impacted" by efforts to improve productivity and shed jobs and various business initiatives such as expansion in emerging markets and selling more products and services to businesses.
The Round Rock, Texas-based company said last May it planned to cut about 10 percent of the work force, or 8,800 of its total staff at the time.
Dell has cut a net 3,200 jobs of those planned and sees cost savings in the multibillion-dollar range this fiscal year, Chief Financial Officer Don Carty said. It so far has eliminated 5,300 positions but hired 2,100 people since it announced the cuts, he said in an interview on Thursday.
"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 said revenue from laptop computers rose 24 percent in the fourth quarter and revenue from server computers and data storage gear each advanced 2 percent. Desktop computer revenue rose 2 percent.
Dell shares have fallen 26 percent since its third-quarter earnings report on November 29, more than twice the decline of the Nasdaq Composite index .IXIC and far worse than HP's 5 percent drop. Dell is trading at 12.8 times expected 2008 earnings per share, a discount to HP's multiple of about 14.
(Additional reporting by Duncan Martell; Editing by Braden Reddall)
