Dell disappoints, HP soars
Dell meets earnings estimates, while HP beats forecasts by 9 cents a share
NEW YORK (CNNfn) - In a rare disappointment, Dell Computer Corp. reported weaker-than-expected revenue growth, sending its shares reeling in after-hours trade and prompting fears that other technology stocks will follow suit when trading resumes on Wednesday.
Dell (DELL) , the Round Rock, Texas-based direct seller of PCs, earned $425 million in the fiscal fourth quarter ended January 29 -- more than any other quarter in the company's history. However, the results were not good enough for Wall Street, which has come to expect stellar performance from Dell.
Art Russell, an analyst at Edward Jones, said rival computer makers have taken a chunk out of Dell's business as the rest of the industry has gotten its inventory problems under control.
"Companies like Compaq, HP and IBM (IBM) now have their inventories in shape because they're combining a direct model with retail sales," Russell said. "That's having an impact on Dell."
In this story:
Hewlett-Packard beats the Street
Dell expects higher sales in year 2000
Dell's profit of 31 cents a share met Wall Street's expectations. But its revenues of $5.2 billion were about $300 million less than analysts expected.
Roger McNamee of Integral Capital Partners said Dell's shortfall could have a ripple effect on the technology-laden Nasdaq market when trading resumes on Wednesday.
"The psychology of the market in the last week has been so fragile," he said. "The swings we saw last week both down and up suggest that any kind of bad news will probably be received poorly by the market." [106K WAV] or [106K AIFF]
Dell executives, however, noted that the company still grew 3.6 times faster than the overall market in the fourth quarter.
Dell shares fell 1-1/8 to close at 88-3/4 in Tuesday trade, then tumbled to 75-1/2 in after-hours trade before recovering slightly to 77.
Competition heats up
Dell shares tumbled last Friday amid fears that stiff competition in the direct-sales market would harm its fourth-quarter sales.
Though the company's worldwide market share has steadily increased, Dell is facing heated competition from No. 1 computer maker Compaq Computer Corp. (CPQ) and Gateway Inc. (GTW).
Russell noted that Dell's business fundamentals remain solid. The average selling price of Dell PCs dipped only slightly, falling to $2,350 from $2,400 in the third quarter, and the company's gross margins increased to 22.4 percent from 22 percent in the year-ago quarter.
Expectations for the company, however, remain high among investors.
"Dell has turned into a growth story, a momentum-type stock," Russell said. "I think the momentum players are worried that they've seen the glory days of Dell."
Dell said it generated sales of $14 million a day through its Web site. Tom Meredith, Dell chief financial officer, said Internet sales constitute 25 percent of the company's business and that Dell is "well on its way" to achieving its goal of making 50 percent of sales on the Web.
"Last year we dramatically extended the capabilities of the Dell direct business model through opportunities with the Internet," said Chairman and Chief Executive Officer Michael Dell. "Our online customer mix moved from a predominantly consumer-oriented base to a far broader base including business and government customers."
Dell, however, will face more competition in that space as well, as Compaq recently began selling its computers over the Internet.
Nonetheless, Michael Dell sounded largely unconcerned with the new players entering the direct-selling model.
"A lot of these companies are talking about going direct, but few of them are transitioning significant portions of their business to direct," Dell said. "We grew 2.8 times faster than Compaq in servers, 4.8 times faster in notebooks, and 3.2 times faster than Compaq overall."
Executives noted, however, that IBM, which competes with Dell in the corporate PC market, was the company's most aggressive competitor in the quarter.
"I was surprised to see IBM's level of competition," Dell said. "That's something we haven't seen from them in a long time."
Revenue boost expected
Despite a slowdown in revenue growth, Dell executives expect the company to boost sales throughout fiscal 2000.
"We were not aggressive enough in our corporate pricing in the third quarter to sustain [previous] levels of growth in the fourth quarter," Meredith said. "We've corrected that and now we're seeing those levels increase."
Meredith also noted that Dell's surveys indicate concerns over the Year 2000 bug will spark an increase in demand among large corporations and government customers as those organizations replace outdated systems.
Dell's earnings beat its year-ago results of $285 million in profits, or 20 cents a share, on revenue of $3.7 billion.
For the 1999 fiscal year, Dell posted a profit of $1.5 billion, or $1.05 a share, on revenue of $18.2 billion, compared with 1998 profits of $944 million, or 64 cents a share, on $12.3 billion in revenue.
Separately, Dell set a 2-for-1 stock split to shareholders of record as of Feb. 26, 1999. The split will be paid on March 5.
HP surprises the Street
Dow component Hewlett-Packard (HWP) reported a first-quarter profit of $960 million, or 92 cents a share, on $11.9 billion in revenue. Analysts polled by First Call expected HP to post a profit of 83 cents a share.
The Palo Alto, Calif.-based maker of computers and printers surprised analysts by beating last-year's results, when it logged a profit of $929 million, or 86 cents a share, on revenue of $11.8 billion.
"We've achieved a good profit outcome despite softness in some of our businesses and weak revenue growth," said Lewis Platt, HP chairman, president and chief executive officer. "Our profit reflects the fact that we continue to tune our business models and cost structures."
Platt, however, sounded off a pessimistic note, saying HP is "not meeting our growth objectives." He added that the company anticipates a slowdown in some businesses in North America and Europe and only slight improvement in Asia.
"While we turned in a respectable bottom-line outcome this quarter, revenue growth remains the key concern," Platt said. "We will continue to invest appropriately to spur revenue growth."
HP said its printer business, however, produced solid revenue gains. In January, the company established a subsidiary, APOLLO Inc., to sell ink-jet printers priced less than $100.
HP shares fell 3-3/16 to close at 73-1/4 in New York Stock Exchange trading, then fell to 69-5/8 in after-hours trade.
-- by staff writer John Frederick Moore
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney