FOCUS-Dell's Q3 net up 55 percent, but stock falls
November 12, 1998 7:54 PM EST
(adds details throughout, byline, pvs. ROUND ROCK, Texas)
By Eric Auchard
NEW YORK, Nov 12 (Reuters) - Net profits at Dell Computer Corp. (Nasdaq: DELL) jumped 55 percent to $384 million during its third quarter, short of Wall Street's loftiest expectations, leading the stock of the leading direct supplier of personal computers to fall in after-hours trading on Thursday.
Nonetheless, the Round Rock, Texas-based company reported strong growth across all of Dell's business divisions and geographic regions, including Asia. as revenues surged 51 percent to $4.82 billion, from $3.19 billion a year ago.
For its third quarter ended Nov. 1, Dell's net earnings translated into 28 cents per share. That beat by one cent the consensus Wall Street estimate, but fell a penny short of the upper range of estimates, which stood at 29 cents per share, according to First Call, which surveys broker estimates.
By contrast, Dell, which sells computers via Internet, mail and telephone orders, earned $248 million, or 17 cents a share, in the same quarter a year ago.
"It's a winners' market," Dell Chairman, Chief Executive and Founder Michael Dell boasted in an interview after the report, referring to how a handful of PC makers, led by Dell, account for virtually all of the industry's growth this year.
With revenues continuing to mushroom at better than 50 percent, Dell's growth far outpaces its rivals and is five times the rate of the PC industry worldwide, he said.
"The companies who have the right cost structures, distribution strategies and product lines are going to outpace the market. Dell is clearly leading the pack of the winning companies," he said.
For the first time, sales transacted over the Internet topped $10 million a day, putting it on track for a run rate of $3.7 billion a year out, or 20 percent of total revenue, Dell said. By contrast, Dell was doing only $6 million a day in business over the Internet in July.
While 80 percent of Internet sales a year ago were to consumers and small businesses, sales to big businesses accounted for only 20 percent.
That ratio has flip-flopped this year, as 80 percent of Internet sales now go to large corporate accounts, he said.
Upwards of 90 percent of Dell revenues come from businesses, with the remaining 10 to 15 from consumer sales. About two-thirds of business PCs are sold to large corporate accounts and one-third to small- and medium-sized business.
Despite the world economic crisis that limited overall PCindustry growth to a modest two percent in Asia-Pacific and Japan, Dell's revenues in the region accelerated during the third quarter by 49 percent compared to a year ago, up from the 35 percent annual rate seen in the first half of the year.
In Europe, holding on to its No. 2 market position, Dell's revenue ballooned by 68 percent. Revenue in the Americas, which accounted for 70 percent of total revenues, rose 46 percent, but the rate of growth in both major regions cooled somewhat compared to the prior quarter ended in July.
"As we come to the end of the calendar year, industry conditions remain healthy," Dell said in a statement.
But the ravenous pace was not enough to satisfy some investors, as the stock fell to $66.63 in after-hours trading, adding to an earlier $2.75 decline that occurred during the regular session ahead of the report. Dell stock had opened for trading on Nasdaq Thursday at just shy of $72.
Despite the drop, the stock remains nearly 65 percent above the trough it hit Oct. 8, when technology investors were seized by fears of a coming slowdown in overall PC spending. Dell's recovery since then has outpaced all major stock indices.
"It was a good quarter, in terms of the expectations that existed (on Wall Street) until about two weeks ago," Daniel Ries, Kaufman Brothers financial analyst Daniel Reis said. "These results would have been slightly better than expected."
He predicted Dell stock might remain choppy in coming weeks as disappointed momentum-style investors exited the stock.
REUTERS
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