Profit Down in First Quarter for Dell, Gain Expected in Second Quarter

Dell CFO Jim Schneider says the company expects to earn 18 cents per share in the second quarter on $8.2 billion in revenue. That would be up 8 percent from sales of $7.6 billion during the same period last year, when earnings were 16 cents a share.

The Round Rock, Texas-based company expects product shipments to be up 3 percent next quarter, compared to an average industrywide decline of 5 percent.

"I don't think we're quite to the point where we're suggesting a turnaround," Schneider said Thursday after the company released first-quarter earnings results. "This is really the Dell team executing very well, and we're now reaping some of the benefits of that."

Dell posted a slight drop in first-quarter profits, though revenue rose and the results surpassed Wall Street expectations thanks to strong U.S. sales and continued cost-cutting.

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For the quarter ended March 31, Dell earned $457 million, or 17 cents per share, compared with $462 million, or 17 cents per share, a year earlier. Revenues edged higher, to $8.07 billion from $8.03 billion, in the same period a year ago.

Analysts surveyed by Thomson Financial/First Call had expected first-quarter earnings of 16 cents per share on $7.7 billion in revenue.

Dell officials say the company benefited from a drop in the cost of components and by taking sales away from competitors.

The company cut operational expenses from $860 million in the year-ago period to $801 million.

Analysts say flat revenue shows that Dell is sacrificing some profitability to gain market share by having lower prices than rivals. Dell must make up for those prices by cutting expenses, which are the lowest in company history.

But Barry Jaruzelski, a consultant at Booz Allen and Hamilton, questioned how much more Dell could cut despite company promises to trim even more operating expenses over the next year.

"Every extra dollar you try to cut is going to be challenging," Jaruzelski says. "This has never been a bloated organization. This has been a lean machine."

Dell, best known for its PCs, also sells servers, software and peripherals to consumers and corporate customers.

On Thursday, Dell reiterated its promise to focus this year on expanding its sales of servers, data storage equipment and notebook computers to business, and on reducing costs below 9 percent of revenue. The company also vowed to increase its cash flow and use some of the proceeds to continue repurchasing shares.

The promises come as Dell rivals Hewlett-Packard and Compaq Computer have merged, and like Dell, are pushing servers and other enterprise products.

Dell lost its top spot among computer sellers when HP and Compaq merged.

"It feels great to be No. 2," says CEO Michael Dell. "I'm actually quite confident that we will once again lead in share of revenue."

Late Friday morning on the Nasdaq, Dell shares were up 28 cents, trading at $28.13.

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