Dell: On Track Despite Weak Demand
By Caroline Humer
NEW YORK (Reuters) - Dell Computer Corp. on Tuesday said it had not seen a pick-up in demand for personal computers but its results in the current quarter were on track as it holds down costs and captures market share from competitors.
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The No. 2 PC maker also poured cold water on rumors that it might buy printer maker Lexmark International Inc. (NYSE:LXK - News).
"We are still sticking by our guidance of our earnings call," Chief Operating Officer Kevin Rollins said on a Bear Stearns conference call with investors.
Dell (NasdaqNM:DELL - News) previously predicted fiscal second-quarter earnings of 18 cents a share, up from 16 cents a year earlier, and revenue of $8.2 billion, up 8 percent.
Dell's backing of its guidance comes after competitors and suppliers have lowered expectations for the quarter. Apple Computer Inc. (NasdaqNM:AAPL - News) last month lowered its guidance due to weak demand, while chip maker Advanced Micro Devices Inc. (NYSE:AMD - News) has warned twice in the past month of low revenue.
Rollins said Dell has seen no rebound in PC demand but has continued to gain market share. Dell has used its low-price, direct-sales business model to build its market share over the past two years. It lost its ranking as the top PC maker in May when Hewlett-Packard Co. (NYSE:HPQ - News) bought Compaq Computer.
Rollins said that "the corporate market really has not picked up much yet. Any glimmers of hope that now it's turning are just not happening yet."
He said demand from education and government customers is on track but consumer demand is soft.
Rollins said he does not believe there has been a pick-up in demand for components used to make PCs, despite some reports out of Asia last week to that effect.
"I think you're seeing a drop in component prices, which says demand is off. That's been a consistent trend," he said. "In the last week or two I don't believe there's enough data to say there's an uptick in demand."
Merrill Lynch analyst Steven Fortuna said in a research note that worldwide PC demand is roughly stable but he has cut his unit sales growth forecast for the second half of the year because of signs that consumer and corporate spending will not pick up. Last week, Merrill reduced its forecast for PC unit sales growth in 2002 to 2.5 percent from 10.5 percent, citing weak technology spending.
Rollins dismissed as "highly unlikely" any chance that Dell would buy Lexmark -- one of many ideas floated by market watchers who suggest that Dell might soon begin making and selling its own branded printers.
However, Rollins said Dell was interested in getting into the printer business, which is highly profitable for some Dell competitors, thanks in part to the lucrative market for ink and services.
Needham & Co. analyst Charles Wolf said in a note that Dell's best choice for entering the printer business was to partner with a printer company, such as Lexmark, with the aim of weakening HP's profitable printer business.
"The rationale underlying the partnership is that Lexmark can afford to sell cartridges to Dell at lower prices because of the high volume of printer and cartridge sales that Dell can bring to Lexmark," Wolf wrote.
Dell closed down 1 cent to $24.74 on Nasdaq, while the broader American Stock Exchange Computer Hardware Index (AMEX:^HWI - News) was off 1.6 percent.
Lexmark shares fell $1.91, or nearly 3.6 percent, to $51.26 on the New York Stock Exchange.
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