Dell's smiling after quarter profits

Dell investors are likely to be pleasantly surprised by profit reports this quarter.

The PC maker reported its first-quarter profits yesterday, with revenue of $16bn, a 9 per cent improvement from a year ago, and earnings of 38 cents per share, a 12 per cent increase.

Analysts were expecting earnings of 34 cents per share and revenue of $15.4bn to $16.2bn. In after-hours trading Thursday, shares of Dell were up 7.5 per cent.

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Following a turbulent 2007, Thursday's results were a more encouraging beginning for this year. CEO Michael Dell said during a conference call with company investors: "We're beginning to see positive results in our performance." He pointed to growth in all business segments in all regions as the impetus. He said that while the industry grew 14 per cent in unit shipments, Dell was able to grow 22 per cent.

It appears the company is back on the right track. Though the number two PC vendor in the world has fallen behind both HP and Acer in laptop sales, Dell showed improvement in the past year. Laptop revenue was up 22 per cent over the past year but just two per cent from the previous quarter.

Chief financial officer Donald Carty, who is to be replaced by Brian Gladden on June 13, said: "I think our results demonstrate we made some progress but still a lot more to be done."

Cost reduction was one of the company's main goals in the past year. Dell reduced its headcount by 3,700 people during the quarter, many in its consumer products divisions and in international sales, for a total of 7,000 in the past year, according to Carty. The company said in the same quarter a year ago it planned on removing 8,800 positions.

Dell also said it has added about 2,700 employees through acquisitions, bringing the net employee reduction to 5 per cent.

It's been more than a year since Michael Dell hit the reset button, promising to revitalise his company that had fallen behind its main competitor, HP. Dell admitted publicly at D6 this week that his company had indeed missed a few very big trends, including retail and a focus on consumer products.

But it's still too early to tell if the company's momentum in retail can be sustained.

John Spooner, analyst with Technology Business Research, said: "Are they getting a pop because they've just entered retail? Retail didn't get it fully in place until this January, so I wouldn't pass judgment until Q4 this year."

In the profits announcement, Dell acknowledged "conservatism in IT spending in the US particularly with its global and large customers as well as public, small and medium business accounts". The company said it expects the conservative spending trend to continue on through summer.

However, the company is making huge gains internationally. For the first time in the company's history, sales outside of the US reached 50 per cent. Dell particularly has its eye on the booming Chinese market.

Michael Dell said: "We believe China is going to become the largest retail market in the world for PCs." Dell's unit sales increased 140 per cent in China over the last year and the company plans to reach 3,500 retail locations in China alone by the end of the next quarter.

Original article: Notebook sales help boost Dell earnings from CNET News.com