Round Rock, Texas, May 12 (Bloomberg) -- Dell Computer Corp., the No. 1 direct seller of personal computers, may beat earnings estimates Tuesday by capitalizing on missteps by rival Compaq Computer Corp., analysts said.
Dell is expected to earn 16 cents a share in the fiscal first quarter ended April 30, the average of analyst estimates gathered by First Call Corp. That's up from a split-adjusted 11 cents in the year-earlier period.
Some analysts say Dell could top estimates by a penny or two by taking business from archrival Compaq, the No. 1 PC maker, where slowing sales cut first-quarter profit to half of forecasts. Dell gained two percentage points in worldwide PC market share during the first three months of 1999, while Compaq's share fell about a point, according to market researcher Dataquest Inc.
''Dell's business model is clicking. They continue to take market share from the competition,'' said Lou Mazzucchelli, an analyst at Gerard Klauer Mattison & Co. in New York, who rates Dell shares ''buy.''
Dell sells its machines on the phone and the Internet, which means it doesn't have to share profits with distributors. The method also gives the company greater control over inventory. Compaq, which sells largely through distributors, revamped its system Monday by cutting its resellers to four from about 40.
Though Compaq's problems provided a lift last quarter, Dell shouldn't count on its rival's woes for the rest of the year, analysts said.
''This will be a one-quarter event, helped by Compaq's misfire,'' said analyst Ashok Kumar at US Bancorp Piper Jaffray in Minneapolis, who rates Dell shares ''buy.''
Sales
Kumar, who is more optimistic about the quarter than most analysts, said Dell's sales may be as high as $5.7 billion, up 45 percent from $3.92 billion in the year-ago period. Sales growth at Dell, based in the Austin, Texas, suburb or Round Rock, is likely to fall back to about 35 percent as Compaq recovers, he said.
Dell disappointed investors in the fiscal fourth quarter with revenue that rose 38 percent. That was the smallest gain in more than two years, and far short of the 50 percent rise that shareholders had come to expect.
Afterward, Dell executives said they didn't cut prices fast enough to win sales during the quarter, and vowed to do better.
Analysts less optimistic than Kumar are expecting Dell to have 38 percent to 39 percent sales growth in the first quarter as well, which would bring revenue to about $5.4 billion.
Dell's shares reflect that tempered view. They've slipped about 1 percent since Feb. 16, when Dell reported fourth-quarter results.
The slump is uncharacteristic for Dell, whose stock was the best performer in the Standard & Poor's 500 Index in the three years from 1996 through 1998. Dell's shares rose 1 5/16 to 43 15/16 today.
''We'd be more than happy with $5.5 billion in sales'' for the quarter, said Duane Eatherly, portfolio manager at Eagle Asset Management in Tampa, Florida, which oversees $7 billion in equity investments and owns Dell shares.
'Blowout Numbers'
Many analysts say the days of 50 percent sales growth are over for Dell, if only because the company has gotten too big to grow like a high-tech startup.
''It's very difficult to deliver those blowout numbers forever,'' said Dan Ries, an analyst at Kaufman Brothers in New York, who rates Dell shares ''accumulate.'' ''I wouldn't expect 50 percent growth anytime in the near future.''
Dell executives have said there are limitations to the company's growth. In an interview in March, Vice Chairman Kevin Rollins said that hiring enough people and erecting enough buildings could curb how fast Dell grows in the future.
''Sometimes, physics takes over,'' Rollins said.
Still, some analysts expect first-quarter earnings and an optimistic conference call afterward to signal that stronger-than- expected profit may be coming in future quarters.
Philip Rueppel, an analyst at BT Alex. Brown Inc., raised his rating on Dell shares to ''buy'' from ''market perform'' on Friday. He expects Dell's sales growth to top 40 percent for the whole fiscal year.
''Dell is in the best position to capitalize on Compaq's recent missteps,'' Rueppel wrote in a report.
May/12/ 99 16:45 |
