Dell profit up 46 percent thanks to cheaper components

Dell's profit reached US$733 million for the second quarter, thanks to stronger than expected corporate sales and cheaper PC parts.

Just two weeks after revealing that some employees had falsified corporate revenue to meet earnings targets, Dell reported a profit of $US733 million for its fiscal 2008 second quarter, up 46 per cent from its mark of $502 million for the same period last year.

The strong result was driven by sales to enterprise customers, an increase in the selling prices of Dell PCs and a drop in component costs, the company said.

Dell recorded revenue of $US14.8 billion for the quarter ending August 3, generating earnings of $US0.32 per share. Both figures were above Wall Street expectations of $US14.63 billion revenue and $US0.30 earnings per share, according to analysts surveyed by Thomson Financial.

However, Dell warned investors to be cautious when comparing the figures to past quarters because the company plans to restate its earnings for the past four years. Dell plans to revise its quarterly and annual financial statements for fiscal 2003, 2004, 2005, 2006 and the first quarter of 2007.

The company also plans to share a number of earnings reports it delayed filing during its internal investigation of the accounting fraud, including the last three quarters of fiscal 2007 and the first quarter of fiscal 2008. The Nasdaq stock market has given Dell a deadline of November 12 to file those reports in order to meet requirements for a publicly traded stock. In addition, the US Securities and Exchange Commission (SEC) plans to continue its own investigation of Dell's bookkeeping practices.

Dell's accounting problems were more than a mere distraction, costing the company $US59 million to pay for its internal audit over the past quarter. Also detracting from its profit was $US102 million in stock option payments, the company said.

Despite its troubles, Dell is making progress on a long-term plan to reduce its operating expenses, CEO, Michael Dell, said in a statement. The company will do that through layoffs, improved productivity and investments in its infrastructure. In May, Dell announced it would lay off 8800 people, about 10 per cent of its workforce. Over the past quarter, the company has made a series of acquisitions, including ASAP Software, SilverBack Technologies Inc. and Zing Systems Inc.

In recent months, Dell has also made a major change in its business plan by augmenting its online direct-sales model with deals to sell its PCs through retail partners such as Wal-Mart Stores in North America and South America, Bic Camera in Japan and Carphone Warehouse in the UK.

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Ben Ames

IDG News Service
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