Dell Computer Corp, the world's second-largest personal-computer maker, said first-quarter earnings fell amid weak growth in corporate demand. Second-quarter sales and profit will exceed analysts' estimates, Dell said.
Net income in the period ended May 3 fell to US$457 million from US$462 million a year earlier, while per-share earnings stayed at US$0.17, Dell said in a statement. Sales rose to US$8.07 billion from US$8.03 billion.
The percentage of sales left after paying production costs fell to 17 percent from 18 percent a year ago, and investment and other income dropped 18 percent, the company said. Chief Executive Michael Dell said corporate customers won't increase their spending on PCs until their own companies have better profits.
PHOTO: BLOOMBERG
"Corporate America is reluctant to make much of a commitment" to buy more PCs, said Bob Rezaee, who helps invest US$8 billion at Montgomery Asset Management. Montgomery owns 600,000 Dell shares.
Dell shares rose US$0.29 to US$28.14 in after-hours trading and moved as high as US$28.61. They rose US$0.15 to US$27.85 in regular US trading. Hewlett-Packard Co is the world's biggest PC maker.
Shares of Dell won't trade much higher until corporations begin replacing their PCs, Rezaee said. The stock has drifted from US$15 to US$30 a share for most of the last two years.
"To break out of this trading range, you need a wholesale corporate replacement cycle to kick in," he said. "You need something considerable to happen."
Second-quarter earnings will be US$0.18 a share on sales of US$8.2 billion, Chief Operating Officer Kevin Rollins said on a conference call. Analysts on average had forecast earnings of US$0.17 on sales of US$8 billion, according to a Thomson First Call survey. Dell had net income of US$433 million, or US$0.16, on sales of US$7.61 billion in the second quarter last year.
A rebound in PC sales might not occur until next year because corporations already have their budgets in place and are unlikely to spend more on PCs this year, Michael Dell said.
"Until they see their own profits resuming in growth, there's not a great appetite on the part of CFOs and CEOs to upgrade," Dell said on a conference call with analysts. "The pent-up demand for an upgrade is pretty significant. There could be quite a strong upgrade cycle."
Dell increased market share by taking sales from rivals, not by growth in the industry, Rollins said.
Operating expenses fell below 10 percent of sales for the first time at Dell. The company generated US$600 million in cash from operations, and inventory dropped nearly 20 percent from a year ago, the company said in its statement.
Dell plans to cut US$1 billion in costs this year, the company said. Product-design, manufacturing and distribution, operating and warranty costs are being reduced, Rollins said.
"This company has become lean and mean during this downturn," Rezaee said.
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