Dell Profit Jumps 21%, Beating Forecasts

Dell Computer Corp. said Thursday that fiscal first-quarter profit rose a better-than-expected 21% as the No. 1 direct seller of personal computers shook off a Y2K slowdown and sold more high-profit machines.

Net income climbed to $525 million, or 19 cents a share, in the quarter ended April 28 from $434 million, or 16 cents, a year earlier.

Sales rose 31% to $7.28 billion, beating expectations for $7.2 billion. Companies began ordering more machines in mid-February when threats associated with the Y2K computer glitch eased. They bought servers, workstations and notebook computers, which carry higher profit margins than desktop PCs do.

“Demand started picking up in February and has been building since,” said David Bailey, an analyst with Gerard Klauer Mattison & Co. who rates Dell a “buy.”

Dell shares, which fell 25 cents to close at $44.69 on Nasdaq before the release, climbed as high as $47.94 in after-hours trading after the report. The stock has fallen 12% this year.

Profit was helped by an investment gain of $80 million, or 2 cents a share. On average, analysts polled by First Call/Thomson Financial predicted that Round Rock-based Dell would earn 16 cents a share, excluding the gain.

Much of the demand was for servers that run Web sites and for other Internet equipment. In recent months, Dell has stressed sales of servers and storage devices to offset slowing PC sales.

Revenue from servers rose 52% in the quarter and accounted for 18% of Dell’s total sales. Notebook computer sales surged 67%, pushing Dell into the No. 2 position worldwide.

Rising sales of the company’s more profitable machines boosted the average price of Dell’s machines to about $2,300 from $2,250 in the fourth quarter.

Even so, 31% sales growth is the same rate Dell posted in the fourth quarter and is the company’s slowest in more than five years.