Dell earnings drop but beat the Street

By Annalyn Censky, staff reporter


NEW YORK (CNNMoney.com) -- Dell shares fell more than 5% in after-hours trading, after the computer maker reported a 5% drop in fourth-quarter earnings Thursday.

The Texas-based company beat Wall Street's expectations, however, on solid sales across all its segments as businesses started spending on IT again.

Net income dropped to $334 million, or 17 cents per share, compared with $351 million, or 18 cents per share a year ago.

Results included a one-time charge of 11 cents per share for special items, mainly related to the company's $3.9 billion acquisition of Perot Systems in November. Without the charge, Dell (DELL, Fortune 500) said it earned 28 cents per share. Analysts polled by Thomson Financial, who typically exclude one-time items from their estimates, were looking for 27 cents.

Sales rose 11% to $14.9 billion from $13.4 billion last year, beating analysts' forecast of $13.85 billion.

In a conference call with analysts following the results, chief financial officer Brian Gladden and Dell chairman and CEO Michael Dell said they expect to see an uptick in commercial sales in the next year and continuing into fiscal 2011 as businesses upgrade to Windows 7.

Gladden said the company is focused on cutting overhead and manufacturing costs and in simplifying its supply chain. Last year, Dell announced plans to trim expenses by $4 billion annually by the end of fiscal 2011. Gladden noted that in the last two years, Dell had consolidated its manufacturing facilities to six from 11.

"Ongoing competitor pressure and economic realities never stop, and we can't either," he said in the call. "We're moving into the next phase of our transformation."

While Dell's financials beat analyst expectations, the news comes with a mixed bag of concerns such as high consumer sales with lower margins, and tight commodity prices, said Shannon Cross, an analyst with Cross Research. On the upside, the company is investing in key growth areas, she said.

"The biggest concern is a lack of leverage in the model," she said. "People had hoped to see more of that revenue upside fall through to the bottom line."

Segment by segment

Analysts say trends point to a hardware-driven uptick in IT spending during the recent holiday months. Notebook and desktop computer sales together account for more than half of Dell's revenue.

Dell reported a 16% year-over-year jump in laptop sales and a 3% drop in revenue from desktops.

Overall, consumer sales were up 11%. That's better than expected, Gladden said in the conference call. That said, operating margins in the consumer segment were below a target 1% to 2%, due to holiday discounts, he noted.

Software sales from Dell's third largest division were flat. Meanwhile server sales rose 26%, while sales in Dell's tech services division were up 51%, year-over-year.

The company's acquisition of Perot Systems in November marked a strategic shift toward ramping up its technology services market share and taking on Hewlett-Packard (HPQ, Fortune 500) and IBM (IBM, Fortune 500).

Revenue from Dell's public business unit jumped 16% to $3.8 billion, with sales from services more than doubling, due in large part from the Perot addition.

Dell's number one rival HP reported results Wednesday that blew past Wall Street's expectations. The company said earnings jumped 25% on 8% rise in sales.

"HP had a lot more room to cut costs that Dell did, and HP has seen far more of the revenue upside fall through to their bottom line. HP is more focused on the consumer, so they've benefited from consumer strength more than Dell has," Cross pointed out.

For the full year, Dell reported a 42% drop in earnings and a 13% drop in sales over the year before. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,956.78 37.19 0.22%
Nasdaq 4,528.00 0.49 0.01%
S&P 500 1,984.30 2.70 0.14%
Treasuries 2.42 0.01 0.50%
Data as of 1:14pm ET
Company Price Change % Change
Apple Inc 100.88 0.35 0.35%
Bank of America Corp... 15.43 -0.02 -0.13%
Staples Inc 11.27 -0.35 -3.01%
General Electric Co 26.28 0.22 0.86%
Facebook Inc 74.82 -0.47 -0.62%
Data as of 12:59pm ET

Sections

Macy's must pay a $650,000 fine to settle complaints that it's staffers wrongfully accused minority shoppers of stealing. More

Small business owners say the economy is still their biggest challenge, which keeps them from expanding and hiring, according to a CNNMoney-Manta survey. More

Small business owners say the economy is still their biggest challenge, which keeps them from expanding and hiring, according to a CNNMoney-Manta survey. More

When hairdresser Mark Bustos isn't cutting the hair of fashion designers and real estate moguls, he's traveling around the world giving free haircuts to the homeless. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.