As predicted, Michael Dell tries to deflect attention from his own eroding profits by negative references to COMPAQ. His reference to attracting COMPAQ staff may indicate that he was stung by rumours that one of his chief executives was moving to COMPAQ. Maybe he hopes to hire Pffeifer!
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DJ Dell Computer CEO Expects Benefits From Compaq Turmoil
By BOB SECHLER
Dow Jones Newswires
AUSTIN, Texas -- Dell Computer Corp. (DELL) Chief Executive Michael Dell told analysts Tuesday that he expects to benefit from what he characterized as "confusion" regarding rival Compaq Computer Corp. (CPQ).
Dell said in a conference call to discuss his company's fiscal first-quarter results that Dell Computer will benefit by luring Compaq customers and employees alike.
"There's clearly some turmoil and confusion out there that will probably help us in the near-term, whether its attracting new talent into the company or attracting new customers," Dell said, although he didn't quantify the impact.
Former Compaq Chief Executive Eckhard Pfeiffer resigned in April after his company recorded a dismal first quarter that disappointed investors.
Round Rock, Texas-based Dell Computer reported earnings of 16 cents a share for its fiscal first quarter on revenues of $5.5 billion - matching the First Call Corp. earnings consensus. Dell earned 11 cents a share on $3.9 billion in revenue in the year-ago period.
But despite Dell Computer's solid, 41% year-over-year revenue growth for its first quarter, some analysts said they're expecting the rate to slow in coming months.
"Going forward, we think the growth rate will settle down to a 30% to 35% level," said Ashok Kumar, an analyst with U.S. Bancorp Piper Jaffray, who participated in Tuesday's conference call.
Kumar based the prediction on stiffening price competition, which he said is eroding profit margins industrywide and "has diminished considerably" any advantages Dell achieves through its once-vaunted strategy of selling directly to consumers.
Kumar also said he expects sales in the third and fourth quarters to be hurt by concerns about the potential Year 2000 computer crisis. Still, Kumar is maintaining his "Buy" rating on Dell stock because "they continue to execute very well."
Edward Jones analyst Art Russell agreed that Dell's rate of revenue growth likely will slow, if only because it would be unreasonable to expect it to sustain its pace of recent years.
Dell had been recording upwards of 50% year-over-year revenue growth before dipping to a 38% rate in its most recent fourth quarter.
"Quite frankly, the law of large numbers is looking to catch up with them," Russell said.
Dell Computer officials, meanwhile, said they're expecting strong demand throughout the year and see opportunities to increase revenues and profits, although they didn't comment specifically on year-over-year revenue growth rates.
Chief Financial Officer Tom Meredith said he expects the company's net margins to remain at the first quarter's 7.8% rate for much of the year.
Meredith also said the company's record $5.5 billion in overall revenues for its first quarter is evidence of the continued "superiority of our direct (sales) model."
Chief Executive Michael Dell disputed the contention that the potential Year 2000 computer problem will hurt demand. Some observers theorize that corporations and others will delay purchases later in the year to assess the problem.
"As the year has gone on, customers seem to be getting more and more comfortable that they're prepared for the transition," Dell told analysts on Tuesday's conference call. "We're getting more and more comfort as time goes by that we don't expect a big disruption in our business."
Meredith agreed, saying "the overall (computer) industry demand is very healthy."
Edward Jones analyst Russell said he continues to think that Dell has "the best model in the business" despite the potential for its revenue growth rates to slow.
"In our eyes, they're doing fine," Russell said. "Demand is solid, and their business is strong."
Dell closed Tuesday at 44 1/16, up 1.9% from Monday's close of 43 1/4. |
