Dell margins miss; plagued by supply shortage

SAN FRANCISCO (Reuters) - Dell Inc’s quarterly profit beat expectations but its gross margin fell short of analysts’ forecasts and the computer maker warned that it expects components supply to remain tight, sending its shares down 3 percent.

Dell computers are displayed at Best Buy in Phoenix, Arizona, February 18, 2010. Dell Inc reported a stronger-than-expected profit, but warned of volatile global currencies and components shortages, and the company's shares stumbled in after-hours trade. REUTERS/Joshua Lott

Dell also appeared to temper expectations for the rest of the year, saying that the second quarter and early part of the third quarter “typically experience slower demand from larger commercial customers in the U.S. and Europe.”

Dell’s adjusted gross margin rose to just 17.6 percent from 17.4 percent in the previous three months. The market had expected 17.7 percent, according to Thomson Reuters I/B/E/S.

“They delivered on revenue, but the Street was expecting a stronger margin recovery,” said Ashok Kumar, analyst at Rodman & Renshaw, adding that Dell could continue to see pressure on its margin due to high component costs.

Dell’s net profit for its fiscal first quarter that ended April 30 was $441 million, or 22 cents a share, compared with $290 million, or 15 cents a share, a year earlier.

Excluding items, profit was 30 cents a share, compared with the average Wall Street forecast of 27 cents.

Revenue rose 21 percent to $14.87 billion, slightly above the average analyst estimate of $14.27 billion.

Dell, which has been struggling to gain profitability due to sales of lower-cost PCs and some higher component costs, said it expects “a normal, seasonal sequential demand pick-up in the low single digits in the second quarter.”

“In addition, the company expects some components to remain in tight supply for the next couple quarters and some volatility in global currencies,” Dell said in a statement on Thursday.

Dell shares fell to $13.89 in extended trade after closing at $14.32, extending their intraday decline of 4.41 percent.

Reporting by Ritsuko Ando; Editing by Richard Chang