Dell beats earnings mark despite sinking profits

Q4 profits fall 30 percent from last year, still beating Wall Street expectations

Still gasping from the resignation of its chief executive in January and an ongoing investigation of its accounting practices, Dell reported fourth quarter profits of $US673 million, down sharply from the $US1 billion it reported for the same period last year.

Still, the company posted earnings of $US0.30 per share, just over Wall Street expectations of $US0.29 per share, according to a poll of analysts by Thomson Financial. Dell's fourth quarter revenue was $US14.4 billion, falling below analysts' expectation of $US14.88 billion and below the $US15.2 billion Dell collected for the same period last year.

For the third consecutive quarter, Dell filed its numbers as preliminary results, not as the official Form 10-Q that every publicly traded company is required to submit to the SEC. Dell blamed the delay on the accounting investigations by the US Securities and Exchange Commission and the US Attorney for the Southern District of New York.

The missing forms could also have pushed Dell closer to being delisted by the Nasdaq stock exchange, which had demanded the forms by March 14. But Dell said a Nasdaq review council had granted it a reprieve last Wednesday, holding further action until another hearing on May 4.

Although this was the first earnings report since Michael Dell replaced Kevin Rollins as CEO in January, company executives did not hold a customary conference call with reporters and analysts. Dell also failed to sum up its quarterly earnings in a full annual report, saying that the preliminary results for its past three quarters may change if the company is forced to restate earnings as a result of the investigations.

In a statement, Dell said he was so disappointed with the results that he had withheld some of the employee bonuses, a savings that added $US184 million to the company's operating income this quarter. That gain was offset, however, by $US89 million the company spent in handling the accounting investigations.

Dell's legal struggles may put an even deeper dent in company books in the long run. In a filing to the SEC last Thursday, the company dismissed the claims as the cost of doing business, but warned that potential settlements or court awards could hurt its bottom line.

"Dell is involved in various claims, suits, investigations and legal proceedings that arise from time to time in the ordinary course of its business," the SEC filing read. "The company could in the future incur judgments or enter into settlements of claims that could adversely affect our operating results or cash flows in a particular period."

Dell saw a major change in sales patterns, as the fourth quarter marked the first time in company history that Dell shipped more computers to customers outside the US than to domestic addresses. The company still pulled 54 per cent of its revenue from the US, but that balance continues to shift.

In another trend, Dell's revenue dropped for both desktops (down 18 per cent by units year over year) and notebooks (down two per cent by units), its two biggest product sectors. The company made up some of the deficit with a rise in revenue from the server, storage and services divisions.

Hoping for a rebound in his fortunes, Michael Dell said he would continue to strengthen his management team and eliminate redundancies in a corporate transformation. Dell also hopes to shorten product development cycles and adopt the company's manufacturing and distribution models to reach more customers in emerging markets, a strategy he said would rebuild his company as "Dell 2.0".

But he warned that those changes would not produce profits overnight.

"The company is focused on transformational efforts that are designed to yield improving operating results ... In the next several quarters, however, the company expects that growth and margins will continue to be under pressure as it implements and refines these actions," the company said in a release.

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Ben Ames

IDG News Service
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