Dell Computer backs earnings target
Company reiterates direct business plan
By Chris Kraeuter, CBS.MarketWatch.com
Last Update: 12:05 PM ET April 4, 2002
NEW YORK (CBS.MW) - Dell's shares rose soundly Thursday as the computer giant met with Wall Street analysts and touted its direct marketing model.
The move came after Dell (DELL: news, chart, profile) reiterated its profit target for the fiscal first quarter and said that sales will decline less than expected.
Shares of Austin, Texas-based Dell advanced 59 cents to $26.77. The announcement has been well received so far by Wall Street.
"We believe that this positive sales pre-announcement demonstrates that Dell continues to execute flawlessly in a tough environment," remarked Merrill Lynch analyst Steve Fortuna in a note to clients. Fortuna rates Dell stock "strong buy."
Dell repeated that it expects to earn 16 cents a share. As for revenue, Dell said sales should only decline 2 percent to $7.9 billion instead of the previously targeted decline of 3 percent to 5 percent.
In a presentation to Wall Street analysts, Dell reiterated its business plan and outlined barriers to entry of its direct-to-sale model that others in the industry are copying. Listen to Dell executives.
"Consumer business has become a bigger part of overall business because of good sales and will continue to match prices where we can to maintain share. Gateway's attempt to hit price parity had virtually no impact on Dell. Since then we've seen Gateway boost prices again and it's hard to determine their strategy. Our consumer strategy is stay aggressive and watch prices but we won't back off since we hold share leadership," said CEO Michael Dell.
The company said it plans to double revenue, but didn't specify a time frame.
In a veiled but casual reference to the proxy battle over the Hewlett-Packard (HWP: news, chart, profile) and Compaq (CPQ: news, chart, profile), Dell chief Michael Dell touted the company's "experienced senior management" with little confusion over the direction of the company.
Dell met its goal of achieving about $1 billion of cost savings in 2001, and it plans to exceed that number in 2002. It'll boost profit margins over time by focusing on the business market, network systems, and servers.
On Wednesday, Dell announced a deal with Microsoft to develop hardware and software components for servers.
On Feb. 14, Dell had said it expected per-share earnings of 16 cents on revenue of $7.65 billion to $7.82 billion. During the same quarter last year, Dell earned 17 cents a share on revenue of $8.02 billion.
Analysts surveyed by Thomson Financial/First Call expected earnings of 16 cents a share on revenue of $7.7 billion, on average.
Thursday's meeting --- available to the public via the Internet -- should last until noon and features presentations and speeches by Dell, CFO James Schneider, and Rollins.
Chris Kraeuter is a reporter for CBS.MarketWatch.com in San Francisco.
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