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Dell Reports 2Q Earnings Jump
Dell Inc. finally saw some positives in its second-quarter earnings report after a year of continuing misfires, but analysts believe it's too soon to tell if the computer maker can return to being an industry juggernaut.
In preliminary results posted Thursday, Dell said quarterly earnings jumped 46 percent on stronger sales of business products and services, improved average selling prices and lower component costs.
Dell earned $733 million, or 32 cents per share, in the three months ended Aug. 3, compared with $502 million, or 22 cents per share, in the same period a year ago. Sales rose 4 percent to $14.8 billion.
The results beat the prediction of analysts polled by Thomson Financial, who expected earnings of 30 cents per share on sales of $14.63 billion.
Dell shares opened up 38 cents at $28.84 in Friday trading.
While a marked improvement, the results were dragged down a nickel per share by a $102 million charge for payments for expired stock options. Another $59 million was related to the internal probe, which found that Dell employees had misled auditors and manipulated results to meet performance.
Dell also acknowledged a "higher-than-normal" backlog of orders due to unexpectedly high demand for new Inspiron and XPS color notebooks, as well as parts shortages for certain flat-panel displays.
Dell said it will now focus on opportunities that would "set the stage for a more sustainable balance of liquidity, profitability and growth." There was no conference call with reporters and analysts afterward to explain these opportunities in more detail.
Andy Cross, a senior analyst at The Motley Fool, questioned Dell's turnaround chances at this point. He said the recent supply issues raised a red flag for a company trying to grow market share.
"Are they around the corner? Are they about to jump on the springboard and go where they belong?" asked Cross, who owns Dell stock. "I'm hopeful but I'm not betting the ranch on it."
Dell's woes began last August with a massive notebook battery recall and continued with the accounting probe, which could cost it up to $150 million in restated earnings.
Dell still faces shareholder lawsuits. Federal prosecutors in New York have subpoenaed documents on the company's financial reporting since 2002. And a Securities and Exchange Commission investigation into the accounting issues continues.
"It's kind of unfair to judge Dell this early on. It's a little like trying to judge a horse race halfway down the course," Gartner analyst Charles Smulders said. "Drawing conclusions at this point is premature, dangerous even."
The past 12 months have been tumultuous, including a shake-up of the company's top ranks, the loss of its No. 1 position in the PC market to rival Hewlett-Packard Co., thousands of layoffs and, more recently, the production delays for its colorful laptops.
"While our results demonstrate we've made progress against our goals, we are still in the early stages of transforming our company's structure, costs and operations," Chairman and CEO Michael Dell said in a statement Thursday.
The direct-sales model, in which consumers and businesses buy Dell products over the Internet or the telephone at a discount, helped bring the company to the forefront of the PC business.
But when Dell's dominance slipped, those sales largely went to competitors who offer systems at retail.
To turn things around, Dell has begun dabbling with retail in partnerships with Wal-Mart Stores Inc. in the United States, as well as retailers in the United Kingdom and Japan.
Dell has also launched the new Vostro brand of computers targeting small businesses, and it has expanded into the lucrative business of selling services to go with the hardware.
Dell, which has 90,400 temporary and permanent employees worldwide, said it would stop its share buyback program until it can file its backlog of SEC reports. That's expected to happen in November.