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Dell claims it will meet 3Q forecasts

Dell Computer Corp, the largest personal-computer maker, said fiscal third-quarter sales and profit will meet forecasts because price cuts lured customers from rivals. The company's shares rose 8.1 percent.

"Sales over the weekend following the tragedy were pretty robust," chairman and chief executive Michael Dell said on a conference call, referring to the Sept. 11 terrorist attacks. "We were surprised at how quickly it came back." Dell reiterated its August forecasts for profit of US$0.15 or US$0.16 a share on sales of US$7.2 billion to US$7.6 billion in the quarter ending Nov. 2. Sales rose in the five weeks before the disaster, the company said.

An emergency plan kept parts flowing and plants running after the attacks, while the company is advertising discounts in television ads featuring a savvy teenager who persuades a friend's mother to buy from Dell. Rival Compaq Computer Corp said this week it had a third-quarter loss as sales slumped before the tragedy, which made matters worse by disrupting transportation, and as customers held off because of the company's pending purchase by Hewlett-Packard Co.

"We think Dell picked up a majority of customers confused over the Compaq-HP merger," said Dan Niles, a Lehman Brothers analyst who rates Dell shares "market perform" and said he doesn't own them. "In a tougher economic climate, people are focused on cost, and if you're looking for the cheapest PC with the best performance, Dell is best." Niles cut his earnings estimates for next year to US$0.72 a share from US$0.75, because global demand for PCs is weakening, he said.

Shares of Dell gained US$1.68 to US$22.32. They had increased just 6.3 percent this year until gaining 11 percent yesterday, after Cisco Systems Inc chief executive John Chambers said the biggest maker of computer networking equipment backed analyst sales and profit estimates for the company in its quarter ending Oct. 27.

Dell was the second-biggest contributor to the NASDAQ 100 Stock Index, adding 2.36 points. The index rose 11.29 points to 1260.70.

"It's a relief to a lot of people that business is normal for a company in the technology space, regardless of the reasons," Graham Tanaka, president of Tanaka Capital Management, said about Austin, Texas-based Dell. He said his firm will add to the 800 Dell shares it owned as of August.

Dell is expected to earn US$0.15 a share on sales of US$7.27 billion this quarter, the average estimates of analysts polled by Thomson Financial-First Call. Dell had year-ago fiscal third-quarter profit of US$0.25 on sales of US$8.26 billion.

The company expects to boost sales in all product categories and regions this quarter, CEO Dell said in a statement. Parts prices continue to decline, letting the company pass savings along to customers quickly, Dell said.

"The question is what they can do with the rest of October and what's going to happen the rest of the year," said Richard Chu, an analyst at SG Cowen. He has a "buy" rating on the shares, which he said he doesn't own.

Michael Dell said he expects PC sales to rebound in next year's second quarter or as late as the third. The Sept. 11 attacks may delay a recovery in PC sales, he said, yet businesses still will need to upgrade systems, the release of Microsoft Corp's new Window's XP operating system may drive demand, and the US government is trying to revive the economy.

"You have the prospect of pretty dramatic stimulus by our government," Dell said. The Bush administration proposes an economic stimulus package costing US$60 billion to US$75 billion.

Dell Chief Operating Officer Kevin Rollins said that he was "perplexed" that Moody's Investors Service downgraded Dell's credit outlook on concern that price cuts may hurt sales and profitability. Dell's business is more stable now than it has been in about two years, he said.

Moody's cut Dell's credit estimate to "stable" from "positive" yesterday, blaming lower demand and price competition. The change affects about US$500 million in Dell debt.

Moody's cited Dell's US$4.5 billion in cash as of August for ``preserving strong financial flexibility." Dell has announced plans to fire as many as 5,700 workers this year in an effort to reduce costs and preserve profit as PC prices tumble.
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