August 19, 2010 / 8:25 PM / 9 years ago

Dell beats revenue targets as profit margin lags

SAN FRANCISCO (Reuters) - Dell Inc beat Wall Street’s profit and revenue estimates in the second quarter and said it expected demand for PCs among corporate customers to remain steady in the coming months.

A man wipes the logo of the Dell IT firm at the CeBIT exhibition centre in Hannover February 28, 2010. REUTERS/Thomas Peter

But the company’s gross profit margin lagged Wall Street expectations and its shares fell in after-hours trading.

During a conference call with the media on Thursday, Dell Finance Chief Brian Gladden said the results were impacted by “sequential component inflation.”

Dell, the world’s No. 3 personal computer maker, has been struggling to improve profitability, even as it grapples with falling PC prices and rising component costs.

Revenue rose 22 percent to $15.5 billion, versus Wall Street’s estimate of $15.2 billion, thanks to strength in sales of server and networking products.

The company reported net income in its fiscal second quarter ended July 30 of $545 million, or 28 cents a share, up from $472 million, or 24 cents a share, in the year-ago period.

Excluding items, Dell earned 32 cents a share, more than the average analyst estimate of 30 cents a share, according to Thomson Reuters I/B/E/S.

Dell said its adjusted gross profit margin was 17.2 percent in the quarter, below the 17.7 percent expected by analysts.

Dell said it expected demand for PCs among corporate customers to continue for the “next several” quarters. It said it expects “seasonal improvements” in the third quarter, thanks to sales to the federal government and business customers, with a resulting “pick up in the low single digits.”

The company reiterated its fiscal 2011 revenue forecast of 14 percent to 19 percent growth, and adjusted operating income growth of 18 percent to 23 percent.

Dell, once the world’s largest PC maker, now vies with Taiwan’s Acer Inc for the No. 2 slot behind Hewlett-Packard Co.

With PCs still accounting for more than half its sales, Dell has been looking to acquisitions to help grow and diversify.

Earlier this week, Dell agreed to buy storage company 3PAR for $1.15 billion. It purchased services company Perot Systems last year for $3.9 billion in its biggest-ever acquisition.

Shares of Round Rock, Texas-based Dell, which are down roughly 31 percent since April, fell 2.6 percent to $11.73 in extended trading.

Reporting by Alexei Oreskovic; Editing by Richard Chang

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