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Dell's Q1 earnings reach record US$731 million

Dell Inc reported record earnings for its first quarter on Thursday, citing surging international sales and the strongest demand from US corporations in more than three years.

But the company's operating margin was the lowest in five quarters, and shares in Dell dropped sharply in after-hours trading.

For the quarter, Dell, based in Round Rock, Texas, said its net income was US$731 million, or US$0.28 a share, up 22 percent from US$598 million, or US$0.23 a share, in the period a year earlier.

Revenue was US$11.54 billion, a 21 percent increase from US$9.53 billion in the quarter a year earlier and higher than Dell's previous forecast. Last month the company raised its revenue forecast for the quarter to US$11.4 billion from US$11.2 billion, citing better-than-expected unit sales.

James Schneider, Dell's chief financial officer, said US corporations were showing more confidence and starting to replace aging computer systems.

"We're seeing good pickup in US corporate demand," he said. "It was the best quarter we've seen in three years."

Product shipments to the Asia-Pacific region and Japan grew 38 percent, increasing Dell's share of the market to second place for the first time, behind Hewlett-Packard.

European, Middle Eastern and African region shipments climbed 37 percent, while shipments in the US grew 18 percent. But the company's operating margin declined to the lowest level in five quarters.

Kevin Rollins, Dell's president and chief operating officer, attributed the margin decline to higher prices for memory chips along with stronger sales of lower-margin products. Rollins, who is scheduled to succeed the com-pany's founder, Michael Dell, as chief executive in July, said that if memory prices had remained stable, Dell's higher revenue would have added a US$0.01 a share.

For the second quarter, Dell said it expected a 24 percent increase in product shipments compared with those in the period a year earlier. It said it expected revenue of about US$11.7 billion, up 20 percent, and per-share earnings of US$0.29, up 21 percent.

Ashok Kumar, an analyst with Raymond James & Associates, said Dell was seeing the effect of fierce competition along with high expectations on Wall Street.

"The bigger issue is HP has emerged as more formidable competitor," he said. "Rising component prices are just a symptom of that because Dell can't pass higher costs onto customers."

Desktop computers accounted for slightly more than half of Dell's total quarterly revenue, with notebooks accounting for 28 percent and enterprise systems accounting for 21 percent.

During the quarter, Dell's share of the ink-jet printer market reached 10 percent.
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