Strong European sales and rising margins helped Dell achieve a 94 per cent profit hike in the third quarter. This was significantly higher than Wall Street had expected and illustrated a more even mix of premium and commodity products in the Dell range, compared to a year ago.
Net income was $145 million or $1.56 a share on sales up 43 per cent to $2.02 billion. Mike Newton, UK managing director of Dell, said the company expects to maintain revenue growth around the 40 per cent mark "for the foreseeable future. Companies in this market have to grow at that level or they get consumed." Analysts had predicted earnings of $1.16 for Dell.
European growth was significant to the results, especially as many rivals had experienced a weak quarter in the region. In the UK, Dell is now second only to Compaq, according to Dataquest, in terms of units shipped. In the third quarter, it saw particular growth in notebooks and servers, which was a corporate trend that largely accounted for the improvement in gross profit margin, from 20.5 to 22.3 per cent, shifting the balance towards higher margin lines.
The UK outperformed the company as a whole in notebooks, increasing shipments by 90 per cent over the same period last year, compared to 80 per cent across the organisation, according to Newton. Notebook sales were up 40 per cent on the second quarter and now account for 19 per cent of total revenue.
Dell's server sales doubled although only the low end model in its newest range, the 2100, was shipping. However, servers still account for only four per cent of revenues. "We are maintaining an aggressive pricing strategy," commented chief executive Michael Dell.
Some analysts questioned whether Dell could sustain such growth rates. Newton commented that the company continues to be very careful to maintain its liquidity, and has reduced cost of sale and inventory to generate more cash. It has seen a bottom line of six per cent of more for several quarters, and this rose to 10 per cent this quarter.
New revenues will come from updates to the existing ranges in the coming year, although Dell has announced no plans for a handheld CE computer or a network computer. "We endorsed the Microsoft-Intel proposals but we want to wait to understand the real needs of customers before deciding about NCs," Newton said.
Another new business for Europe is leasing and asset management, which became available in this quarter. In partnership with US company LSI, which has set up a European subsidiary, Dell will extend its US programme for companies with large fleets of PCs across the Atlantic.
Separately, Dell authorised a two-for-one stock split for shareholders, the second in just over a year. In the first nine months of this fiscal year, Dell share prices have risen in value more than those of any other US company listed in the Dow Jones world stock index, up 125 per cent.
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