Dell Meets Street, Confirms Sunny Forecast

Number two computer maker Dell matched analyst expectations for sales and profit in the fourth quarter and, more surprisingly to some observers, said it remains on track to meet targets for the current quarter.

Fourth-quarter revenue rose 21 percent to US$9.74 billion, an impressive gain given that computer sales overall were largely flat, Dell noted. Net income also rose to $603 million. For all of 2002, Dell posted revenue of $35.4 billion.

“This performance would be outstanding in any environment,” Dell president and COO Kevin Rollins said in a conference call.

Dell shares immediately spiked in after-hours trading Thursday and continued to move higher Friday morning, with the stock up 7 percent to $24.89. In the broader markets, Dell’s positive news gave all tech stocks a much-needed boost after a week of mostly down days.

Pricing Pressure

Both Rollins and Dell founder and CEO Michael Dell said the company expects an ongoing price war to continue indefinitely, but that Dell’s strategy will not waver. In fact, the company said it gained market share around the world in several categories in the fourth quarter.

“We have seen nothing that would cause us to depart from what has been a very successful strategy,” Rollins said.

That strategy has focused mainly on Dell’s direct-sales model and nearly two years’ worth of productivity improvements that saw some factories closed to save costs.

Morningstar.com analyst David Kathman told the E-Commerce Times that Round Rock, Texas-based Dell has become a poster child for efficiency through its direct-sales approach and highly streamlined factory operation.

Outlook Looking Up

Although many tech companies managed to squeak past expectations for the fourth quarter, most also issued lackluster 2003 forecasts that stamped out enthusiasm among analysts and investors.

Dell, however, said it expects to book revenue of $9.5 billion, with net income of 23 cents per share, the same levels most analysts had predicted previously.

Among the company’s gains in 2002 were sales to large enterprises. Rollins said the company now has sold some 300 high-performance computer clusters to large businesses. And in some key markets, including the Far East and parts of Europe, server sales grew nearly 50 percent.

“Those sales are significant because they [also] represent additional sales in services, software and peripherals,” Rollins added.

Spreading Out

IDC senior analyst David Daoud told the E-Commerce Times that Dell has planned for the overall tech spending slowdown by rolling out new products to boost top-line growth. Last year, for example, the company entered the handheld market with some success, and a long-rumored entry into the printer business is expected sometime this year.

“Dell has cast a pretty wide net for potential new revenues,” Daoud said. “That might help them get through the slowdown and be in a solid position when tech spending bubbles up again.”