Business Sales Boost Dell Profit 25%; Firm Moves Closer to Lofty Revenue Goal
Record sales of computing products and systems, especially to businesses, propelled Dell Inc. to a 25% increase in profit in its best quarter ever.
The momentum will help the computer maker reach its goal of becoming a $60-billion company as early as 2005, about a year ahead of schedule, Chief Executive Kevin Rollins said Thursday.
Dell shares, which gained 40 cents to $37.25 in regular Nasdaq trading, rose to $38.02 in extended trading after the quarterly results were announced.
“They’re just hitting on all cylinders,” said James Ragan, an analyst with Crowell, Weedon & Co. in Los Angeles. “Business is strong, their business model is very favorable, the brand name Dell is gaining traction, and they seem to be gaining market share in all areas.”
The Round Rock, Texas-based company earned $846 million, or 33 cents a share, in its fiscal third quarter ended Oct. 29, compared with $677 million, or 26 cents, a year earlier. Revenue climbed 18% to $12.5 billion.
“It was very upbeat. It was record everything,” said Mark Stahlman, an analyst in New York with San Diego-based investment bank Caris & Co. He added that he was struck by Dell’s assertion that corporate buyers didn’t seem tied to economic cycles.
“They see people buying on a steady basis, not going through booming and busting,” he said. “Because of that, they’re very confident of growth rates.”
For the quarter that will end in January, product shipments should rise 20%, boosting sales to $13.5 billion and profit to 36 cents a share, Rollins said.
With Dell on track to hit $49.2 billion in revenue in the fiscal year ending in January, and with sales growth in the range of 18% to 20%, “we think the 60 billion is within reach about a year early,” Rollins told analysts during a conference call.
Growth in the United States was led by a strong 20% increase in spending by business customers. The overall market for consumers is soft, but Dell is meeting with success, Rollins said. Sales to consumers make up about 20% of Dell’s revenue.
“Our goals are fairly lofty and our expectations are high, but the consumer market is still pretty hot for Dell,” he said.
In consumer electronics, a segment Dell entered last year, analysts expect increased momentum on the strength of such products as digital music players and flat-panel television sets, many designed to handle high-definition TV broadcasts.
“The big event for consumers isn’t really going to come until Christmas of ’05, but it will be major when it finally arrives,” Stahlman of Caris & Co. said. “Next year is going to be an HDTV Christmas, and I believe that Dell ... will have some significant contributions.”
And while rivals such as Hewlett-Packard Co., Gateway Inc. and Apple Computer Inc. intensify their efforts to widen their shares of the consumer market with similar product lineups, Dell will probably gain ground, said Crowell, Weedon’s Ragan, who owns Dell stock.
“Competitors are going to have to take note that Dell is going to go aggressively after the consumer electronics sector,” he said. “Their direct sales allow them to charge a lower price and still earn good margins.”