Dell Profits Helped By Higher Prices, Lower Component Costs

Aug 30, 2007 (02:08 PM EDT)

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Dell on Thursday reported higher revenue and profits for the fiscal second quarter, primarily because of sales of enterprise products and favorable market trends that included higher average selling prices and lower component costs.

The computer maker, which is in the midst of a major restructuring started when founder Michael Dell returned to the helm in January, reported a net income of $733 million, or 32 cents a share, for the quarter ended Aug. 3, compared with $502 million, or 22 cents a share, for the same period last year. Revenue rose to $14.8 billion from $14.09 billion a year ago.

The company's profits were helped by an increase in sales of computer servers, which rose to $1.6 billion from $1.4 billion a year ago, and sales of storage products, which increased to $600 million from $500 million. In addition, Dell said it benefited from higher average selling prices and lower components costs.

"While our results demonstrate we've made progress against our goals, we are still in the early stages of transforming our company's structure, costs, and operations," Michael Dell said in a statement.

Gartner analyst Charles Smulders said Dell this year has sold more servers and storage hardware, but fewer desktops and notebooks. "It's a mixed bag," Smulders said of Dell's financial performance.

From April to June, Dell's PC shipments worldwide fell 5.5% from the same period a year ago, and 11.4% in the United States, according to Gartner. The company, however, shipped 7.3% more servers, which was more than the market average.

Overall, Smulders cautioned against reading too much from the latest financial numbers, given that Dell has yet to reach the halfway mark in its 18-month restructuring plan. "I wouldn't take too much direction from these numbers," he said. "They are in a transformation period, so making a judgment call now is very difficult."

Besides the impact of its restructuring, Dell's finances may also be affected by an ongoing investigation by the Securities and Exchange Commission into the computer maker's past accounting practices. The company this month said it would restate several years of financial results because of improper accounting that was apparently used by management to hit financial targets.

The company Thursday warned that the current financial statement, as well as restated statements, is considered preliminary until the end of the SEC probe.

Michael Dell became CEO in January after chief executive Kevin Rollins quit following an 18-month stretch of slowing sales and profits. The decline led to Dell steadily losing global market share to rival Hewlett-Packard, which is the leading computer maker worldwide. Dell remains No. 1 in the United States.