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Dell robust in Q2 - Europe brightest star of all
Future looks rosy, too

By John G Spooner and Tony Hallett

Published: Friday 13 August 2004

Dell posted second quarter earnings on Thursday afternoon, meeting Wall Street's expectations for revenue and profit.

The Round Rock, Texas-based PC maker posted a profit of $799m, a company record, on revenue of $11.7bn for its second fiscal quarter, which ended on 30 July. During the same quarter a year ago, the company saw a profit of $621m on revenue of $9.8bn. Its revenue and profit increased by 20 per cent and 29 per cent, respectively, year over year.

The results were largely in line with analyst expectations.

Dell's results will undoubtedly be examined closely by Wall Street following HP's release on Thursday of lower-than-expected second quarter results. HP, which issued a preliminary earnings statement early on Thursday, cited weakness in servers and storage systems, caused by a combination of its own lack of execution in the US and Europe and on market conditions, which it said produced only a muted uptick in server sales toward the end of its quarter. That quarter ended 31 July.

Dell saw no such problems with its server group, however. The company said its server shipments grew by 31 per cent during the quarter. Overall, its product shipments increased by 19 per cent. But its highest growth rate came from its Europe, Middle East and Africa region, where it said shipments increased by 30 per cent.

Paul Bell, Dell EMEA president, said there is a confident outlook at the company which reckons it can maintain a growth rate as high as 20 per cent. While Europe edged the regional figure growth, Bell said: "This [set of results] shows consistency around the world and is the culmination of lots of efforts and investment over time, to make the business sustainable."

And Dell expects to keep on turning in the robust figures. In a conference call with journalists, CEO Kevin Rollins responded to how he gauges business from now on, saying: "We just went out with another fairly bullish guidance for our Q3. That should tell you."

Dell expects its product shipments to rise by 21 per cent year over year during its third quarter, which should help boost its earnings and lift revenue to about $12.5bn, up 27 per cent and 18 per cent respectively. The forecast matches analysts' expectations.

Dell executives believe that lower component costs will allow it to lower prices on PCs, helping it to ship more units. Chief Financial Officer Jim Schneider estimates that component prices will decline by about half a percent per week during the current quarter.

The second quarter results show Dell's PC business and its corporate server and storage lines - which are among its highest priorities - are selling well. However, the company is still working its way into new markets, such as printers.

In printers, a business introduced in March 2003, Dell is on track to sell over five million units during its current fiscal year 2005, the company said. It will get there by building on its existing business, which includes numerous inkjet and laser printer models. It plans to introduce models such as color laser printers soon and to move into new geographic markets. It will begin selling printers in China during the third quarter, for example, chairman Michael Dell said during the conference call.

Dell's Bell said the company will bring in $1bn in total from imaging this year and that printer sales in Europe will soon be proportional to sales of other Dell products in Europe versus the rest of the world.

The company intends to begin selling new Dell-brand flat-screen televisions within a few weeks. Those models will include larger screens, Dell said. It also plans to deliver a plasma screen TV this year.

John G Spooner writes for CNET News.com. silicon.com's Tony Hallett contributed to this report.