Dell Says First-Quarter Profit Falls 18% After PC Sales Stall
2006-05-18 16:40 (New York)

By Connie Guglielmo
     May 18 (Bloomberg) -- Dell Inc., the world's largest
personal-computer maker, said first-quarter profit fell 18
percent. The company said it will cut $3 billion in costs this
year and begin using chips from Advanced Micro Devices Inc.
     Net income fell to $762 million, or 33 cents, from $934
million, or 37 cents, a year ago, Round Rock, Texas-based Dell
said today in a statement distributed by Business Wire. Sales
rose 6.2 percent to $14.2 billion in the period ended May 5, the
slowest rate of growth in four years.
     Chief Executive Officer Kevin Rollins warned last week that
profit fell below a February forecast and sales were at the low
end of expectations after Dell cut prices to spur orders. The
Dell Effect, the ability to buy parts at a lower cost and keep
prices low by selling direct, is faltering as consumers pick up
rivals' low-cost notebook PCs sold through local retailers.
     ``Dell is no longer the only option' in customers' minds
when shopping for cheap PCs, Samir Bhavnani, an analyst with
researcher Current Analysis Inc. in San Diego, said before the
results. ``Now people can to Wal-Mart and they can go Costco.'
     Dell didn't give a specific forecast. The company said
results this quarter will be similar to the first-quarter's.
     Goldman Sachs Group Inc.'s Laura Conigliaro expects 34 cents
on sales of $14.2 billion. Her second-quarter profit estimate
matches the average projection from analysts in a Thomson
Financial survey. On average they predict sales of $14.3 billion.
     Shares of Dell jumped 60 cents in extended trading to $24.55
after the report. They advanced 32 cents to $23.95 at 4 p.m. in
Nasdaq Stock Market composite trading and have lost 20 percent
this year.

                            Rivals Gain

     Palo Alto, California-based Hewlett-Packard, the No. 2 PC
maker, this week said second-quarter profit rose 51 percent.
Hewlett-Packard's shares have added 13 percent this year.
     Dell last week reported preliminary results of 33 cents in
profit, below a February forecast of 36 cents to 38 cents. The
company said sales would be $14.2 billion, at the low end of a
range of $14.2 billion to $14.6 billion.
     Of 31 analysts tracked by Bloomberg, 17 recommend investors
buy Dell stock and 12 say hold. Two suggest selling. A year ago,
19 said buy, six said hold and one said sell.
     Dell began including stock-compensation costs in its
earnings in the first quarter. The company accelerated the
vesting of its stock options in January, reducing its stock-based
compensation expenses for fiscal 2007 to 10 cents a share from
the 18 cents previously expected.

                         Earnings Misstep

     The misstep was the third in the past year as Rollins, 53,
struggles to achieve the growth delivered by his predecessor,
company founder Michael Dell. The company missed its sales
forecasts twice last year and in November backed away from a goal
of reaching $80 billion in sales by 2009.
     Revenue growth hasn't been less than 10 percent since the
first quarter of fiscal 2003, when sales grew less than 1
percent. Sales gains averaged 18 percent in the past three years
and first-quarter revenue jumped 16 percent to $13.4 billion a
year go.
     Dell will keep cutting prices to win sales and spend to
improve customer service and product quality, Rollins said last
week.
     ``They're going to be willing to take slightly lower margins
than they're used to,' Ted Moore, an analyst at National City
Private Client Group in Cleveland, which owns 2 million Dell
shares, said before the results. ``Given they are the low-cost
producer, we think they can maintain profitability in the PC
group better than their competitors.'

                          Fiercer Rivals

     Dell, which took the lead from Hewlett-Packard in 2001 by
catering to business customers looking for low-priced machines, is
facing fiercer competition from PC rivals who have cut costs and
improved manufacturing, distribution and customer service.
     A revived Hewlett-Packard under new CEO Mark Hurd took
market share last quarter. China's Lenovo Group Ltd., with
International Business Machines Corp.'s PC unit, and Apple
Computer Inc. also are expanding.
     In the calendar first quarter, Dell's worldwide PC market
share dropped to 18.1 percent in from 18.6 percent a year
earlier, according to market researcher IDC of Framingham,
Massachusetts. Hewlett-Packard boosted its share to 16.4 percent
from 15.1 percent a year earlier.
     In the U.S., Dell's PC shipment growth was virtually
unchanged, the first time in a decade that growth was below 5
percent, IDC said. Dell gets about 60 percent of its revenue from
personal computers.
     ``What they've got to do is regroup, come back and just
restrategize,' said John Jacobs, president of Charleston, West
Virginia-based Jacobs & Co. ``Once they do this, I think then
you'll see Dell begin to become a formidable foe of Hewlett-
Packard on all sides again.'

     (The company will host a conference call at 5 p.m. New York
time. To listen, see {LIVE <GO>.}

--With reporting by Howard Liberman, Charles Stein and Dierdre
Bolton in New York. Editor: Palazzo.

Story illustration: See {DELL US <Equity> GP <GO>} for a graph of
Dell's stock price. For a chart of how Dell's profit compares
with analysts' estimates, see {DELL US <Equity> SURP <GO>}. For
sales by region, see {DELL US <Equity> DES 7 <GO>}.

To contact the reporter on this story:
Connie Guglielmo in San Francisco at (1) (415) 743-3582 or
cguglielmo1@bloomberg.net.

To contact the editor responsible for this story:
Emma Moody at (1)(212) 617-3504 or emoody@bloomberg.net.

[TAGINFO]
DELL US <EQUITY> CN
AMD US <EQUITY> CN

NI TEC
NI COS
NI ERN
NI CPR
NI TX
NI OFF
NI ELE
NI US
NI WARN
NI EST

#<561017.3732365.2005-11-10T14:40:00.25>#
-0- May/18/2006 20:40 GMT