Dell Inc’s quarterly earnings and margins blew past Wall Street expectations as component costs slid and corporations replaced aging technology, propelling its shares 6 percent higher.
Its forecast for a rise of between 5 percent and 9 percent in current fiscal-year revenue also modestly surpassed Wall Street targets.
Dell executives expressed confidence that the company could sustain the boost in profitability, but some analysts questioned that premise. Dell posted a gross margin of 21.5 percent — about 15 percent above the average forecast — aided in part by falling prices of items like memory chips and LCD screens.
Photo: AFP
Shares of Round Rock, Texas-based Dell leapt nearly 6 percent to US$14.70 after hours, following a brief trading suspension, from a regular NASDAQ close of US$13.91. It had spiked briefly as much as 8 percent after the news.
Shares of larger rival Hewlett-Packard Co (HP), which would also benefit from lower input costs and better corporate spending, gained more than 1 percent to US$48.54 after hours.
Dell’s servers and networking revenue climbed 16 percent, while commercial personal computer revenue rose 10 percent, as businesses spent to upgrade outdated hardware.
“There’s still a majority of our customers who have not begun the corporate refresh, or who have started and still have a long way to go,” Dell’s chief financial officer Brian Gladden said in an interview.
Although Gladden said he expects component costs to remain favorable through the first half of the year, he downplayed input cost declines as the central factor in Dell’s improved profitability. He stressed supply chain improvements and disciplined pricing. Dell’s quarterly operating income was at its highest in five years.
However, many analysts still need convincing that Dell’s turnaround effort is bearing fruit.
“I still don’t think in the long term they can sustain gross margins based on lower input costs because that will get competed away,” said Michael Holt, an analyst at Morningstar.
Dell still pulls in most of its revenue from selling PCs. It has benefited from a surge in spending as businesses of all sizes spend again on equipment after two years of recession.
Dell is waging an uphill battle to diversify its revenue base: It wants to become a larger player in the data center equipment market, a provider of IT services, and gain a toehold in the fast--growing mobile space with tablets and smartphones.
However, it faces stiff competition in those markets from the likes of International Business Machines Corp, HP and Apple Inc.
The company said it expects more acquisitions in areas like storage servers and services to come.
The latest purchase by Dell was of data storage company Compellent Technologies Inc in December for about US$960 million.
Investors have remained on the sidelines as Dell’s turnaround plan proceeds in fits and starts. Analysts say they are still looking for the company to prove it can sustain higher levels of profitability.
Dell’s non-GAAP gross margin came in well ahead of analysts’ average estimate of 18.6 percent. Revenue rose 5 percent to US$15.7 billion, matching Wall Street’s target.
“Revenues were a little bit less than expected, but they performed well on the margin side. Our question is: How sustainable is this going forward?” asked Brian Marshall, an analyst at Gleacher & Co.
For the next fiscal year, Dell expects revenue growth of between 5 percent and 9 percent, translating into revenue of US$64 billion to US$67 billion, mostly higher than the average forecast of US$64.4 billion according to Thomson Reuters I/B/E/S.
The No. 2 PC maker on Tuesday reported a net profit of US$927 million, or US$0.48 a share, in the fiscal fourth quarter ended Jan. 28, up from US$334 million, or US$0.17 a share, a year ago. Excluding items, Dell earned US$0.53 a share, beating the average estimate of US$0.37 a share, according to Thomson Reuters.
Although Dell has made plenty of noise in smartphone and tablet markets, its products have not been well received, and it will have to work hard to set itself apart from rivals.
Gladden said the mobile business is currently immaterial to Dell and he does not expect to see it contribute to the company for a “couple” of years
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
ARTIFICIAL INTELLIGENCE: The chipmaker last month raised its capital spending by 28 percent for this year to NT$32 billion from a previous estimate of NT$25 billion Contract chipmaker Powerchip Semiconductor Manufacturing Corp (力積電子) yesterday launched a new 12-inch fab, tapping into advanced chip-on-wafer-on-substrate (CoWoS) packaging technology to support rising demand for artificial intelligence (AI) devices. Powerchip is to offer interposers, one of three parts in CoWoS packaging technology, with shipments scheduled for the second half of this year, Powerchip chairman Frank Huang (黃崇仁) told reporters on the sidelines of a fab inauguration ceremony in the Tongluo Science Park (銅鑼科學園區) in Miaoli County yesterday. “We are working with customers to supply CoWoS-related business, utilizing part of this new fab’s capacity,” Huang said, adding that Powerchip intended to bridge
Microsoft Corp yesterday said that it would create Thailand’s first data center region to boost cloud and artificial intelligence (AI) infrastructure, promising AI training to more than 100,000 people to develop tech. Bangkok is a key economic player in Southeast Asia, but it has lagged behind Indonesia and Singapore when it comes to the tech industry. Thailand has an “incredible opportunity to build a digital-first, AI-powered future,” Microsoft chairman and chief executive officer Satya Nadella said at an event in Bangkok. Data center regions are physical locations that store computing infrastructure, allowing secure and reliable access to cloud platforms. The global embrace of AI
Qualcomm Inc, the world’s biggest seller of smartphone processors, gave an upbeat forecast for sales and profit in the current period, suggesting demand for handsets is increasing after a two-year slump. Revenue in the three months ended in June will be US$8.8 billion to US$9.6 billion, the company said in a statement Wednesday. Excluding certain items, earnings will be US$2.15 to US$2.35 a share. Analysts had projected sales of US$9.08 billion and earnings of US$2.16 a share. The outlook signals that the smartphone market has begun to bounce back, tracking with Qualcomm’s forecast that demand would gradually recover this year. The San