Dell’s Profit Up 22% as Sales Jump

Continuing its profitable roll, computer maker Dell Inc. said Thursday that its fiscal first-quarter earnings rose 22%, helped by growth overseas and strong sales of server computers and high-capacity storage devices.

Dell earned $731 million, or 28 cents a share, in the period ended April 30, up from $598 million, or 23 cents, a year earlier. Revenue increased 21% to $11.5 billion from $9.5 billion last year.

The growth keeps Dell on track toward its goal of posting revenue of $60 billion to $70 billion by 2007. Dell’s revenue last fiscal year was $41.4 billion, a 17% increase from 2002.

“The market-share gains they had in the first quarter appeared fairly impressive, so I think they’re on a continued trend to take more share,” said James Ragan, an analyst with brokerage Crowell, Weedon & Co. in Los Angeles.

Round Rock, Texas-based Dell is in tight competition with Hewlett-Packard Co. of Palo Alto in personal computers, servers, storage and other computing systems, and the two are engaged in constant price wars that trim earnings.

Revenue in the current quarter probably will reach $11.7 billion, but profit in the period probably will not exceed analysts’ consensus estimates of 29 cents a share, Chief Financial Officer Jim Schneider said in a conference call. Analysts polled by Thomson First Call had predicted per-share earnings of up to 31 cents.

That helped send Dell shares, which had fallen 65 cents to $35.80 in regular Nasdaq trading before results were released, down to $34.68 after-hours.

Investors were also disappointed that although Dell posted higher sales than the company last month said it expected for the quarter, profit did not budge from forecasts.

“There was a bit of surprise that they did so strongly on revenue and didn’t bring down another penny to the bottom line,” said Ragan, who owns fewer than 1,000 Dell shares and whose firm does not do investment banking with Dell.

Dell’s unit sales outside the U.S. were up 35%, and revenue was up 31%, Schneider said. In Japan, Dell surpassed NEC Corp. during the quarter to become the No. 1 provider of server computers for the first time.

Dell’s printer business, launched 14 months ago under a manufacturing agreement with Lexmark International Inc., has been stronger than anticipated, with sales of more than 800,000 in the first quarter, Schneider said. Dell’s inkjet printers have garnered about 10% of the U.S. market, and its all-in-one printers have gained about 17%, he said.

“We didn’t expect to make money at this point in time, and even though we are aggressive in pricing, we are actually making money, selling more cartridges than we had thought,” Schneider said.

A steady stream of replacement ink represents the profit in printers. One in four Dell printers are sold with an additional ink cartridge, Schneider said.

Dell’s earnings were also helped by increased business spending on technology.

“This is the best quarter we’ve had in U.S. corporate business in 3 1/2 years,” Schneider said. “I think people have been holding out on replacing equipment for so long that you have a lot of obsolete technology out there.”