Dell Surges Most in Five Years on Turnaround Progress (Update3)
By Melita Marie Garza
May 30 (Bloomberg) -- Dell Inc. rose the most in five years in Nasdaq trading after profit and sales beat projections, signaling that Chief Executive Officer Michael Dell's turnaround strategy is making progress.
The shares climbed as much as 9.8 percent after the second- largest personal-computer maker said sales advanced to $16.1 billion, exceeding the $15.7 billion average of analysts' estimates compiled by Bloomberg.
Consumer laptop shipments rose 78 percent, indicating that Dell's 2007 decision to start selling through retailers has helped the company make strides against larger rival Hewlett- Packard Co. Revenue increased in all regions, led by a 19 percent gain in Asia, which helped overseas sales exceed those in the U.S. for the first time.
``The emerging markets and international provide them a wonderful opportunity,'' portfolio manager Michael Shinnick of 1st Source Bank in South Bend, Indiana, told Bloomberg Radio. ``That will be what drives their growth.'' Shinnick manages about $2.6 billion, including Dell shares.
Sales advanced in all groups except desktop PCs. Revenue from laptops, which accounted for almost two-thirds of the consumer business, rose at the fastest pace at 22 percent, Dell said yesterday in a statement. The software unit and storage division followed with growth of 17 percent and 15 percent.
Dell's Shares
Dell jumped $1.98 to $23.79 at 10:03 a.m. New York time on the Nasdaq Stock Market. Earlier the shares rose as high as $23.95, the largest gain since February 2003. They had fallen 11 percent this year before today, compared with a 5.1 percent drop by the Standard & Poor's 500 Information Technology Index.
Merrill Lynch & Co. raised the rating on the stock today to ``buy'' from ``neutral,'' saying ``Dell is beginning to benefit from the investment phase of its turnaround.'' Banc of America and Goldman Sachs Group Inc. also increased their ratings.
Yesterday's results provide a lift for some of Dell's largest investors, who bought shares during the calendar first quarter, when Dell's stock had its worst performance in seven years. Nine of Dell's 10 biggest holders added to their stakes then, including Southeastern Asset Management Inc. and State Street Corp., according to data compiled by Bloomberg.
Dell's first-quarter net income climbed 3.7 percent to $784 million, or 38 cents a share, from $756 million, or 34 cents, a year earlier. That compared with the average analyst estimate of 33 cents for the quarter ended May 2.
Retail Strategy
Michael Dell, 43, has added 13,000 retail outlets in the world's 20 largest economies since last year to help expand beyond the U.S. Dell took back the reins last year after the company lost the lead in PC shipments to Hewlett-Packard. Since then, in a bid to attract more customers, he has abandoned the practice of selling PCs only via the phone and the Internet.
In the first quarter, Dell agreed to sell products through Officeworks, the largest office-supply retailer in Australia. The company also counts Japan's Bic Camera Inc. and France's Carrefour SA among its overseas retailers.
Dell's expansion comes as U.S. economic growth has slowed. Economists on average project that U.S. gross domestic product will be little changed this quarter, compared with 0.9 percent growth in the previous period. Some companies have reined in technology budgets to cope with the slowdown, according to Stamford, Connecticut-based research firm Gartner Inc.
``When the economy slows down, you see this hesitancy about commitment'' to technology spending, Chief Financial Officer Donald Carty said in a Bloomberg Television interview. ``We're seeing that in the U.S. market today.''
In developing countries, Dell is targeting more customers with cheaper machines, he said. The PC maker is ``aggressively'' entering markets with lower-priced products, which drives the company's average price down, Carty said.
Asia Growth
Dell expects its sales in Asia to rise faster than the industry and to add jobs in the region, Steve Felice, the company's Asia president said in an interview with Bloomberg Television today.
The PC maker doesn't expect any ``significant'' impact from the delay in the release of Intel Corp.'s new version of the Centrino processor chip, Felice said on a conference call today. Dell usually makes allowances for potential delays from its suppliers, he said.
Intel, the world's largest chipmaker, said on May 27 it will delay the debut of the Montevina chip, the latest version of its Centrino laptop processor, because of technical problems.
Sales of servers, used by companies to power business networks, climbed 3.8 percent. Dell ranked second in server shipments in the last calendar quarter, surpassing International Business Machines Corp. and posting the biggest gain among the top manufacturers, Gartner reported last week.
`Restabilizing'
They ``are taking back some share they clearly lost, but there's also some organic growth with servers,'' Gartner analyst John Enck said in a telephone interview. ``Michael Dell has done a very good job of restabilizing the company and regaining control of costs.''
Dell cut about 1,000 jobs in the first quarter after acquisitions, leaving the company with about 79,900 full-time employees, or 4.4 percent less than a year ago. Dell plans to trim as much as $3 billion in expenses annually in the next three years, partly through reducing the workforce and moving production to lower-cost manufacturers.
``We still have much work to do to restore our competitive position,'' Dell said on a conference call yesterday. ``I am encouraged by the acceleration in our growth -- you will see much more.''
---With reporting by Mike Schneider in New York, Connie Guglielmo and Rochelle Garner in San Francisco, Andrea Tan in Singapore, Greg Miles in New York and Chris Fournier in Montreal. Editors: Julie Alnwick, Andrew Dunn
To contact the reporter on this story: Melita Marie Garza in New York at mgarza4@bloomberg.net
Last Updated: May 30, 2008 10:16 EDT |
