May 31, 2007 / 8:41 PM / 13 years ago

Dell profit beats Street; to cut 10 pct of jobs

SAN FRANCISCO (Reuters) - Dell Inc. DELL.O unveiled on Thursday quarterly earnings and revenue that topped analysts’ expectations and plans to cut about 10 percent of its work force, sending its shares up 6 percent.

An undated file photo of a Dell Server. Dell Inc. <DELL.O>, the world's second-largest personal computer maker, on Thursday said it plans to cut about 10 percent of its work force over the next year to reduce costs. REUTERS/Handout

The after-hours stock price topped a 12-month high set in November. Apart from the results and job cuts, investors were also encouraged as the No. 2 personal computer maker said customers bought more-expensive systems and component prices fell in the quarter, helping profit margins.

“The results are way better than expected,” said American Technology Research analyst Shaw Wu, who rates Dell shares as neutral. “They are surprisingly strong in the U.S. enterprise market given that the environment is somewhat mixed.”

Recent reports by market research firms Gartner and IDC had indicated Dell’s personal computer sales would be worse, he added.

The job cuts, which would translate into about 8,800 of its 82,800 permanent employees and 5,300 temporary staff, would take place over the next year, and Dell said the cuts would vary across regions, customer segments and functions.

Fiscal first-quarter net income fell to $759 million, or 34 cents per share, from $762 million, or 33 cents per share, reported a year earlier. Dell said the first-quarter and year-ago quarter’s figures were subject to restatement as regulators have been investigating its accounting practices for almost two years.

Revenue rose to $14.6 billion from $14.2 billion reported a year earlier. The results beat the average forecasts of analysts polled by Reuters Estimates, who had expected earnings of 26 cents per share and revenue of $13.9 billion.

Earnings and revenue at Dell had been shrinking as rival Hewlett-Packard Co. (HPQ.N) extended its PC market-share lead by selling more laptops and printers in stores and expanding overseas, taking the title of market leader from Dell.

Founder Michael Dell, 42, retook the CEO job in January after sales growth slumped and the company’s past accounting came under scrutiny by federal regulators and prosecutors.

The company said last week it would break from its 23-year-old practice of selling directly to customers via the Internet or phone and would sell low-priced PCs at Wal-Mart Stores Inc. (WMT.N) in North America beginning June 10.

Dell said on Thursday no determination had been made whether restatements of prior results would be required because of the accounting reviews. Thomas Luce III, chairman of the Dell board committee auditing the company’s accounting, said the review was “taking us longer than we would have liked.”

Dell stock rose to $28.58 from a close of $26.91 on Nasdaq, where they had gained 2.6 percent in regular-session trading.

For its second fiscal quarter, Dell expects operating profit margins to be “under pressure” compared to the first quarter as the period typically has slower sales and Dell sees higher costs from both operations and the investigations.

Full-year results may be hurt by “transformational actions, changing competitive dynamics, a more aggressive pricing environment” and higher second-half component costs, it said.

ACCOUNTING CONCERNS

Dell said in March an internal audit found evidence of misconduct, accounting errors and deficiencies in its financial controls. The investigations have kept Dell from filing results with the Securities and Exchange Commission for last year’s second and third fiscal quarters as well as its annual report.

Dell disclosed last August that the SEC had been pursuing an informal inquiry of its accounting for a year. The SEC review became formal in November, and the Justice Department joined the probe.

Dell benefited in the first quarter from PC component price cuts that also helped rivals including Apple Inc. (AAPL.O) and HP. Prices have fallen sharply for components such as memory chips, hard-disk drives and flat-screen display monitors, analysts and company executives have said.

Additional reporting by Eric Auchard

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