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Dell meets 1Q forecasts
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May 18, 1999: 6:55 p.m. ET
PC maker's profits rise 42 percent as sales over the Internet soar
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NEW YORK (CNNfn) - Personal computer powerhouse Dell Computer Corp. Tuesday reported a 42-percent increase in its fiscal first-quarter earnings, in line with Wall Street estimates, as sales over the Internet represented 30 percent of its overall revenue.
For the quarter ended April 30, Dell (DELL) logged a profit of $434 million, or 16 cents per share, in line with analysts' estimates, according to First Call. Revenue climbed 41 percent to $5.5 billion.
Dell shares rose 13/16 to close at 44-1/16 on the Nasdaq stock market prior to the announcement. Its shares quickly tumbled in after-hours trading, falling to 41-1/8 on the Instinet trading system after the earnings report.
Though most other PC firms would salivate over 41-percent revenue growth, analysts said investors have become spoiled by Dell's long running 50-percent-plus sales growth.
"This was a solid quarter for Dell," said Kurt King, an analyst at NationsBanc Montgomery Securities. "But by their unique standards, it's not a home run."
Dell's shares over the last three years
Dell is coming off a disappointing fourth quarter, when the company met Wall Street's profit estimates but fell short of revenue expectations. Company executives were quick to point out that PC demand remained strong, but analysts have come to expect stellar performances from Dell.
"The question is: Is Dell dropping the ball or are analysts' expectations rising?" King said. "I think it's more of the latter. It's almost expected that Dell will do the unexpected."
With No. 1 PC maker Compaq Computer Corp. (CPQ) struggling, however, analysts have indicated that the door is open for Dell and other competitors to gain market share.
"Clearly there is some turmoil and confusion out there that can help us out in the near term," Chief Executive Officer Michael Dell said in a conference call with analysts.
Internet sales boost growth
Dell, a leader in the direct sale of PCs, attributed part of its growth to strong sales over the Internet. The company said it surpassed $18 million a day in e-commerce -- or 30 percent of its total revenue -- up from $14 million a day in the previous quarter.
The Round Rock, Texas-based company is steadily moving toward its goal of achieving 50 percent of its sales over the Internet.
"We're increasingly applying the Internet to our entire business, from component design to end-user support, in the process making it easier to do business with Dell, enhancing relationships with customers and suppliers and reducing costs for all of us," Michael Dell said.
"We believe we're doing so to a much greater degree than anyone else in our industry, and it is already a compelling difference in winning and retaining customers of all types."
Gross margins decline
Dell's gross margins declined to 21.5 percent from the previous-quarter's margin of 22.4 percent. The company reported gross margins of 22.3 percent in last-year's first quarter.
King, who rates Dell a "buy," told CNNfn that company officials previously indicated Dell would cut its margins to boost its top-line growth.
"I expected them to sacrifice margins a little more to help the top-line number," King said.
Dell's shrinking gross margins follows its entry into the sub-$1,000 PC market. Dell's average revenue per PC fell to $2,300 from $2,350 in the previous quarter. That figure was sharply off the $2,500 average revenue per unit in the year-ago period.
But Thomas Meredith, Dell chief financial officer, said only a fraction of Dell's sales came from sub-$1,000 systems, adding that most of the company's consumer customers purchase systems at the higher end.
He noted Dell's lower gross margins was more of a reflection of passing cost savings to consumers - savings achieved with shifting more of its businesses to the Internet.
Dell outpaced its year-ago results, when it logged a profit of $305 million, or 11 cents per share (adjusted for two stock splits), on $3.9 billion in revenue. 
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