Dell laptop sales raise bottom line
The growing popularity of laptop computers fueled a surge in fiscal third-quarter sales for Dell Inc. and, with lower component costs, a 27% increase in profit, the Texas-based computer maker said Thursday.
Quarterly income was $766 million, or 34 cents a share, compared with year-earlier income of $601 million, or 27 cents. Revenue for the quarter ended Nov. 2 rose 8.5% to $15.6 billion from $14.4 billion last year.
Dell shares gained 45 cents to close at $28.14 before results were released. But in after-hours trading, the stock dropped as much as 10% as analysts cited several concerns.
The shift toward laptops, also known as notebooks, was a “tipping point” for the company, said founder Michael Dell, who returned as chief executive last January to revitalize operations.
It’s part of a recent industry trend spurred by lower laptop prices and improved technology, such as better battery life, said Richard Shim, an analyst with the research firm IDC.
“It used to be that manufacturers developed for the desktop, and the development would eventually get to notebooks,” Shim said. “Now development is starting on notebooks and once it’s mature on notebook, it’s easier to move it to a desktop.”
The company said it planned to make laptops one of its priorities in the coming years as it expects sales of laptops, which rose 19% in the quarter, to grow at six times the rate of desktop sales, which declined 1% in the quarter. Together they account for 60% of Dell’s revenue. The company also sells servers and software.
In the last year, Dell has been under a cloud as the firm lost global personal computer market share to chief competitor Hewlett-Packard Co. and faced a Securities and Exchange Commission inquiry about its accounting practices.
In October 2006, HP overtook Dell as the worldwide leader in PC sales. In the last quarter, HP garnered 19.6% of the global market, a 33% increase. Dell claimed a 15% share, up 3.8%.
When Michael Dell returned to the helm, the company reshuffled its management team and stopped making predictions of its future performance. Last month, Dell restated its financial results for four years.
For the latest quarter, the company earned a penny less a share than analysts on average had expected, according to a survey by Thomson Financial.
Analysts said they were concerned that the company hadn’t shown an even greater jump in its earnings compared with the previous quarter, especially given that laptops tend to have higher profit margins.
Analysts on a conference call with Dell executives complained because the company had declined to provide a forecast for the fourth quarter or commit to cutting staff.
“This is a company that is not as well run as people think it should be run,” said Shaw Wu, an analyst with American Technology Research Inc.
“They are well positioned to turn the business around,” said Brent Bracelin, an analyst with Pacific Crest Securities. “The question is how fast they can improve margins.”
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