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Dell profit up on strong corporate demand

Dell Inc. reported higher first-quarter profits Thursday due to better corporate demand for new technology, and it predicted more profit and revenue gains in the second quarter.
/ Source: Reuters

Dell Inc. posted a 22 percent rise in first-quarter net income Thursday as the world’s largest personal computer maker took market share and benefited from stronger corporate demand, but concerns about higher-than-expected computer parts costs sent its shares lower.

Pacific Crest Securities analyst Brent Bracelin said Dell’s operating margin was the lowest in five quarters, due to greater sales of less-profitable products.

“The stock is down because of the margin issue,” Bracelin said, adding that Dell’s software and peripherals and its Asia business, which are less profitable than Dell’s core business, grew strongly and dragged down profitability slightly.

Higher costs for memory components also hurt, the company said.

Dell reported net income of $731 million, or 28 cents per share, for the fiscal first quarter ended April 30, compared with $598 million, or 23 cents per share, a year earlier.

Revenue increased to $11.54 billion from $9.53 billion a year earlier, above the $11.4 billion that Dell told analysts in early April to expect. The company also said then to expect first-quarter earnings of 28 cents a share.

“While the quarter is very solid, it is not as strong as the Street expectations, including our own, that have been building in the last week or so,” Goldman Sachs analyst Laura Conigliaro said in a research note.

The Round Rock, Texas-based company said its closely watched gross margins slipped to 18 percent from 18.2 percent in the previous quarter and 18.3 percent a year earlier.

“Clearly there was more pricing pressure, and that flowed down the operating and net income lines,” said Barry Jaruzelski, lead partner in Booz Allen Hamilton’s global technology and electronics practice.

Dell Chief Financial Officer Jim Schneider said during a conference call that the company had beat revenue expectations by $100 million but had not beat earnings expectations by a penny because of the higher cost of random-access memory late in the quarter. It said operating expenses were 9.6 percent of revenue, compared with 9.8 percent last year.

The company said it had gained market share in computer printers, one of the new markets that Dell has expanded into. Dell said it now has about 10 percent of the market in inkjet printers and market share “in the upper teens” for all-in-one printers.

Demand from U.S. corporations picked up, while the Asia Pacific region and Japan had a strong quarter.

“We’ve got double-digit growth in the U.S. business market again, and that’s really Dell’s core market,” said Martin Reynolds, an analyst at market research firm Gartner Inc. ”Japan and Asia are coming on now. These are the kind of results you’d expect right now when the market is strong.

Looking ahead, Dell said it expects second-quarter revenue of $11.7 billion, up 20 percent from the prior year, and earnings of 29 cents a share compared with 24 cents a year earlier. It sees product shipments rising 24 percent.

Analysts were expecting fiscal second-quarter revenue of $11.59 billion and earnings of 29 cents a share, according to Reuters Research, a unit of Reuters Group Plc.