Dell Computer Corp, the largest personal computer maker, said fiscal fourth-quarter sales and earnings will exceed its forecasts as an aggressive advertising campaign helps the company take consumer business from rivals.
Profit will be US$0.17 a share on sales of about US$8 billion in the period ending Feb. 1, the company said in a statement. Dell in November forecast earnings of US$0.16 on sales of US$7.6 billion.
Dell has stolen market share from Compaq Computer Corp, Gateway Inc and other rivals even as PC shipments fell last year for the first time since 1985. Dell, which gets the bulk of sales from corporations, has lured consumers using TV commercials featuring a teenage pitchman named Steven, and Chairman Michael Dell has appeared on Comcast Corp's QVC home-shopping channel.
"The advertising campaign has been incredibly effective at capturing market share in the consumer segment," said Jim Lyon, a portfolio manager at Oakwood Capital Management, which owns 137,000 shares of Dell. "Dell's strength has been in the business segment. In the last year, they've aggressively gone after the consumer business."
Dell shares fell US$0.77, or 2.7 percent, to US$28.18 in midafternoon trading. They rose 56 percent last year. The company sells its PCs exclusively using a direct model, letting consumers and businesses order over the telephone or the Internet. Shipments to consumers will increase 50 percent from the third quarter and revenue from the home PC business will rise 40 percent, the Austin, Texas-based company said. Dell's consumer business makes up about 20 percent to 30 percent of revenue, and more in the holiday season, said Andrew Neff, an analyst at Bear Stearns & Co.
In last year's fourth quarter, the company had net income of US$434 million, or US$0.16 a share, on sales of US$8.67 billion.
Dell was the only PC maker to increase worldwide shipments in the calendar fourth quarter, market researcher IDC said yesterday.
The company's unit sales rose 14 percent to 4.86 million units.
Dell's market share climbed to 14.2 percent from 11.7 percent a year ago, while fourth-quarter shipments dropped 6.7 percent industrywide, IDC said.
Rivals that lost market share include No. 2 Compaq, which had 11.2 percent, down from 12.9 percent a year ago. International Business Machines Corp, the fourth-biggest PC maker, had 6.2 percent market share in the fourth quarter, compared with 7.4 percent a year ago. Hewlett-Packard maintained an 8 percent share.
In the US, Dell's market share increased to 27.5 percent, while one of its main rivals for consumers, direct PC seller Gateway, fell to 6.3 percent from 8.8 percent a year ago.
Dell has controlled costs by firing 5,700 workers last year, leaving it with 34,400 employees at the end of its third quarter.
The company today said profit margins are stable this quarter. In the period ended in November, Dell reported gross margin -- or the percentage of sales left after subtracting production costs -- of 18 percent. Dell's statement was upbeat compared with recent news from rivals. Gateway last week said its unit shipments fell 15 percent in the fourth quarter. Compaq on Wednesday said its PC division reported a fourth-quarter loss and won't be profitable until the second half of this year.
Michael Dell has predicted a rebound in PC sales in the middle of this year as corporations upgrade their machines. The company will report final fourth-quarter results and will give a first-quarter forecast Feb. 14.
Dell's advertising agency for the TV spots, which show Steven persuading his friends' parents to buy them Dell computers, is the Chicago office of Omnicom Group Inc's DDB, said Deborah McNair, a Dell spokeswoman. Steven's recurring line is, "Dude, you're getting a Dell!" The ads have worked well, Michael Dell said during a November conference call. Dell spent US$431 million on advertising during fiscal 2001, according to a regulatory filing. Ad spending figures for this fiscal year weren't immediately available.
The stock is falling today because investors are concerned that Dell's shares are too highly valued, said Sunil Reddy, an analyst at Fifth Third Bancorp, which owns 240,000 Dell shares. The shares are trading at about 44 times estimated earnings, considered high for the market, said Reddy, who said he is not buying more Dell right now.
"We'll wait until there is weakness in the stock," he said. "We're comfortable with what we have."
While the stock is expensive, it may rise as high as US$35, said Bear Stearns analyst Neff, who owns shares in Dell.
"We see Dell in a superior position to emerge a winner from the ongoing price war and consolidation with its cost leadership and a direct model," Neff wrote in a note to clients.
Dell's stock is faring better today than its computer-making peers, said Lyon. Hewlett-Packard fell 78 cents, or 3.3 percent, to US$22.75. Lyon said he'll buy Dell shares for his new clients.
"Their model for manufacturing PCs continues to perform well. It's clearly the best model in the industry," he said. "We'll see continued consolidation and intense competition in this industry, and Dell continues to dominate it."
Dell's largest shareholder is Michael Dell, who founded the company and owns 310.4 million shares, or 12 percent of the stock, according to a May regulatory filing.
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