Dell 3Q Earnings Top Estimates But Come With A Warning

The computer hardware giant reported earnings of $677 million in the quarter, or 30 cents per share, on $14.4 billion in revenue. The average of Wall Street analyst estimates for Dell forecast earnings per share of 24 cents on sales of $14.44 billion, according to Thomson Financial.

For the year-ago quarter, Dell turned in revenue of $13.9 billion and a profit of $944 million, or 39 cents per share.

But the results were underscored by a lengthy warning. In a press release issued after the market close, Dell said the numbers might change significantly following several probes into its finances. The Round Rock, Texas-based company also said it won't file its mandatory 10-Q report with the U.S. Securities and Exchange Commission for the third quarter, on top of already being delinquent in filing its second-quarter 10-Q.

"The company is not currently able to predict the extent of the significance of any such [financial report] changes, and those changes could materially affect the preliminary results reported . . . as well as the previously announced results or the second quarter," Dell said in the release.

No Dell executives were quoted in the press release, and company executives won't conduct a their traditional conference call with financial analysts to discuss the earnings in more detail or answer questions.

Dell's competitors in the channel said they haven't noticed any slackening of the company's aggressiveness in the market.

"With all the scrutiny, their gross [revenue] is not as good as before, and the profit margin goes down to the bottom," said David Chang, president of Agama Systems, a Houston-based system builder. "They are still the strongest PC company in North America, I think. HP is the biggest, but Dell is very, very aggressive. Down the road, their future is not as rosy as before."

Despite Dell's insistence that it would step back from its ultra-aggressive pricing in the past, Chang said he has noticed no significant change in the PC pricing landscape over the past quarter.

"I'm seeing the same point-and-shoot thing that's built them up to the company they are," said Ted Hunter, general manager of Champion Networks, a Brunswick, Maine-based solution provider. "I think their problems are more internal than external."

One key to a Dell turnaround, Hunter said, would be a decision by the company to boost its presence in the market and increase its services reach by working with the channel. Hunter cited one-time direct-only PC maker Gateway as an example.

"They were able to diminish the bleeding, and they did it primarily through implementing services," said Hunter, whose company has partnered with Gateway in services engagements.

"I absolutely believe Dell is absolutely capable of becoming a channel player should they choose to do so," Hunter said. "At some point, being in a commodity market, Dell is going to have to smell the coffee."

Among Dell's highlights for the quarter, according to its news release, were a better grip on its product margins.

"In the quarter, the company achieved a better balance of liquidity, profitability and growth, which was driven by an improved mix of products worldwide," the release said. "In addition, the company continued to focus its actions to strengthen product lines, particularly in the enterprise, improve customer experience, and accelerate growth outside the U.S."

Dell said that near-term improvement in growth and profitability "may not be linear" because of continued investments in customer service, global expansion, new products and "muted seasonal uplift due to changes in the mix of product and regional profit."