Sun, Feb 16, 2003 page10

• Dell Computer rises after forecast

  • BLOOMBERG
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  Shares of Dell Computer Corp, the world's second-largest personal-computer maker, rose 11 percent after the company said first-quarter sales will increase more than forecast.

  The report pushed up shares of suppliers such as chipmaker Intel Corp and rival Hewlett-Packard Co as some investors took Dell's remarks as a sign that the PC business has stabilized. The Standard & Poor's 500 Index added 2.1 percent.

  Dell is taking business from rivals in the US and China, analysts said. Shipments will increase more than 25 percent this quarter, compared with less than 10 percent growth industrywide, the company said late yesterday. That suggests that even if the economy doesn't pick up, Dell will outperform rivals.

  "I see Dell as a growth insurance policy in a way -- you know you're going to get double-digit growth at a minimum, even in a bad economy," said Graham Tanaka, whose Tanaka Capital Management owns Dell shares among its US$100 million in assets. "If you start to have a better economy, there's even stronger growth."

  Dell shares gained US$2.52 to US$25.77 at 4pm New York time on the NASDAQ Stock Market. They have declined 3.9 percent in the past year, compared with a 13 percent drop at No. 1 PC maker Hewlett-Packard.

  Sales at Dell will rise to US$9.5 billion in the period ending in April, more than the US$9.45 billion average Thomson First Call estimate. Round Rock, Texas-based Dell predicted profit of US$0.23 a share, matching the First Call forecast. In last year's first quarter, net income was US$0.17 on sales of US$8.07 billion.

  "Dell's a good bet for investors who want a safer way to get into technology," said Michael Sheldon, chief market strategist of Spencer Clarke LLC, which owns Dell shares. "Gateway [Inc] and Apple [Computer Inc] are faltering, while Dell's thriving, and HP is holding its own."

  PC sales started slipping in the second half of 2000 and fell 4.2 percent in 2001, the first decline since 1985, according to market researcher IDC. Sales rose 1.5 percent last year.

  "I don't think you can take Dell's results and make a broad statement that IT spending is going to increase," Sheldon said. "Some recent surveys state there's too much uncertainty out there. Dell is unique. They have a fantastic model."

  Dell's advertising, which features interns learning about the PC maker, helped increase consumer purchases last quarter, Chief Executive Michael Dell said yesterday. The company is also winning more orders outside the US Shipments rose 39 percent in Germany, France, China and Japan in the fourth quarter.

  Dell, the most profitable PC maker, keeps costs low by selling directly to consumers and relying on suppliers to provide components and research. Profit in the fourth quarter ended Jan. 31 rose 32 percent to US$603 million, or US$0.23 a share. Sales increased 21 percent to US$9.74 billion.

  The PC maker cut $1 billion in costs last year. Dell shifted more telephone support work to India from the US, where labor costs are higher, and consolidated some real estate by moving its Austin headquarters back to the suburb of Round Rock.

  That helped boost its gross margin, the percentage of sales left after paying production costs, to 18.3 percent in the fourth quarter from 17.6 percent a year earlier. Gateway had a fourth-quarter gross margin of 12.3 percent.

  Dell's margin improved for a third straight quarter from the preceding period and rose to its highest since the third quarter of fiscal 2001, when it reached 21.3 percent and the company reported record net income of US$674 million, according to Bloomberg data.

  "They're gaining market share as they stay profitable, and in a very difficult, flat PC market," Tanaka said.

  "And what happens when they gain market share is that they gain more economies of scale, and their lead just gets wider."
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