NEW YORK (CNN/Money) -
Dell Inc. executives continue to be cautious about the prospects for a corporate tech spending recovery and cited increasing price pressures in the highly competitive personal computer industry.
The biggest maker of PCs reported a 21 percent jump in third-quarter profits Thursday. Dell said net income rose to $677 million, or 26 cents a share, from $561 million, or 21 cents a share, a year earlier. The results matched average forecasts on Wall Street, according to First Call.
Sales rose 16 percent to $10.6 billion from $9.1 billion and came in a shade above estimates of $10.5 billion.
Dell said it expected revenue in the fourth quarter of $11.5 billion and earnings of 28 cents a share. Analysts, on average, have been expecting sales of $11.2 billion and earnings of 28 cents a share.
Dell (DELL: down $0.03 to $35.64, Research, Estimates) shares recouped some of their earlier losses after the results were announced during regular trading, rather than after the closing bell. But the stock still wound up falling 3 cents and slipped another 0.6 percent in after-hours trading, according to Island ECN.
Concerns about a PC price war?
During a conference call, Dell Chief Financial Officer Jim Schneider said the reason the report was released early was some of the results were inadvertently posted on Dell's Web site Thursday afternoon before the market closed.
Some investors may still be somewhat disappointed that Dell, which dominates the PC market, only met estimates instead of beating them. "The numbers came in pretty much as expected," said Wendy Abramowitz, an analyst with Argus Research.
Investors may also be spooked by continued fears about price wars in the PC market. The company said the PC business still faces "sharp industry price competition."
Dell rival Hewlett-Packard (HPQ: Research, Estimates), due to report results next week, has been in a bitter fight for market share since its merger with Compaq was completed in 2002. During a separate conference call with analysts, Dell president Kevin Rollins said competition was more intense during the past two quarters than it had been for some time.
Nearly 80 percent of Dell's revenue comes from the sale of desktop and notebook computers. Overall operating margins for Dell were 8.6 percent, unchanged from its fiscal third quarter.
Market share gains, not big demand, lifting sales
Dell said its global server shipments rose 30 percent from a year ago in the quarter, while sales of external storage systems rose 68 percent. Strength in Dell's so-called enterprise business segment, which also includes services, could be a sign of stronger business investment in technology.
But Eric Rothdeutsch, an analyst with Friedman Billings Ramsey, said it was more likely that Dell continued to gain market share in these businesses, as opposed to seeing a major increase in demand.
"This was a strong performance in spite of what is still a bit of a depressed economic environment," said Rothdeutsch. "The floodgates for corporate information technology spending have not opened yet."
Dell said shipments in Asia and Europe showed the most growth, with volume in the key markets of China, Japan, France, Germany, and the United Kingdom increasing a combined total of 32 percent in the third quarter from the same period last year.
Yet Dell, unlike many other large tech companies, depends more on the U.S. market, with 71 percent of total sales coming from the Americas. Shipments in the United States rose 20 percent from a year ago, led more by strength in consumer spending than corporate buying.
Dell has introduced several new consumer electronics products recently, such as a digital music player and flat screen televisions. The company has also been boosting its presence in the printer market.
During the call with the media, CEO Michael Dell stressed that its nascent consumer electronics business is really not a crucial part of its overall strategy. "These new products that you've seen us introduce are interesting, but most of our growth is still coming from the enterprise," said Dell.
It seems that investors do realize this, which is why there will ultimately need to be more optimism about corporate spending from Dell in order for Wall Street to believe that the tech comeback is sustainable. And Dell still is not giving any indication that this is the case. "The large corporate market is still being somewhat conservative," Dell's Rollins said.