(REUTERS) Dell results seen secure but analysts eye 2nd half
Dell results seen secure but analysts eye 2nd half
By Eric Auchard
NEW YORK, May 17 (Reuters) - Dell Computer Corp. <DELL.O>,
the fast-growing direct seller of personal computers, is
expected to report first-quarter results Tuesday that meet or
slightly beat Wall Street's tightly focused profit outlook.
For Dell, the outcome is expected to be the equivalent of
shooting fish in a barrel, with brokers targeting profit
estimates in a tight range of 15 cents to 17 cents per share.
Most expect 16 cents, according to a First Call Corp. survey.
The consensus view for the first quarter ended in April
compares with 11 cents per share reported in the year-ago first
quarter, adjusted for separate 2-for-1 stock splits in
September and March.
Analysts are confident the Round Rock, Texas company can
deliver revenues around $5.5 billion -- up 40 percent
year-to-year and two to three times the rate of major rivals --
but down from Dell's historic annual rates above 50 percent.
Dell can ill afford any sign of further deceleration after
the stunning fiscal fourth-quarter slowdown that caused Dell
stock -- for years among the best-performing U.S. equities --
to stumble sharply in February and trade sideways since then.
"We are not so much concerned about the April quarter,"
U.S. Bancorp Piper Jaffray analyst Ashok Kumar said of the his
brokerage's expectations for Dell results. "We are concerned
about the outlook for the second half of the year," he said.
"We expect Dell's corporate business to pick (up) after
last quarter's weakness, as Dell said they exited 4Q (fourth
quarter) with the largest backlog in memory," Merrill Lynch
analyst Steve Milunovich said in a note to clients Monday.
Sales at Dell, the No. 2 PC supplier worldwide, are
expected to benefit from the turmoil at the No. 1 PC maker,
Compaq Computer Corp. <CPQ.N>, which posted first-quarter
results that were only half of what Wall Street expected.
"Our surveys show Dell generally gaining share in corporate
accounts," Milunovich said of the company's core market, which
accounts for about two-thirds of revenues. The remainder comes
from sales to small business, home offices and consumers.
Investors will demand evidence of solid execution across
its range of businesses, and indications that the company's
outlook remains robust heading into the perilous second half of
this year, thus justifying its still lofty stock valuation.
Echoing the views of several analysts, Kumar said he
expected revenues of about $5.5 billion and earnings in line
with the Wall Street consensus of 16 cents per share for Dell's
fiscal first-quarter ended in April.
He allowed that Dell has the potential to bring in another
$150 million to $200 million in first-quarter revenues that
would help boost bottom-line profits to 17 cents or 18 cents
per share -- or a penny or two above expectations.
"The April quarter could be very strong -- on the back of
Compaq's failed execution during the quarter," Kumar said. "We
just don't think Dell has sustainable momentum," he said.
Kumar pointed to signs the North American PC market --
which accounts for two-thirds of Dell's revenues -- has slowed
in the face of a corporate "lock-down" on new PC spending as
companies focus on fixing "Year 2000" date glitches in existing
equipment.
"Right now the direction seems to be very negative," Kumar
said of his darkening view of Dell's outlook for the
second-half, which comes in spite of his continued
recommendation to clients to buy Dell stock.
While Dell is seen as a sure bet to gain share against
rivals Compaq, International Business Machines Corp.<IBM.N> and
Hewlett-Packard Co. <HWP.N>, analysts will look for signs that
industry price and ongoing component cost declines have sapped
Dell profit margins.
Milunovich expects gross margins to decline to 22 percent
from 22.4 percent in the fourth quarter ended in January due to
aggressive pricing in corporate accounts, sales of new,
lower-margin sub-$1,000 PCs and a shortage of notebook parts.
On Monday, Dell stock closed at $43.25, up $2.06 on the day
in heavy Nasdaq trading ahead of the financial report, due out
after the close of trading Tuesday.
The stock has traded in a range since falling from
February's perch of $55, an all-time high, adjusted for stock
splits.
((-- Eric Auchard, New York newsdesk, 212-859-1840))
REUTERS
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