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Dell profit down in line with company forecast

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CIOL Bureau
New Update

Philipp Gollner

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SAN FRANCISCO: Dell Inc., the world's biggest personal computer maker, on Thursday said quarterly profit fell 28 percent but the company posted stronger profit margins than some had expected.

Dell forecast fourth-quarter results roughly in line with Wall Street targets, and shares rose slightly in after hours trade. The company had warned on third-quarter results on Oct. 31.

Net income for its fiscal third quarter ended Oct. 28 fell to $606 million, or 25 cents per share, from $846 million, or 33 cents per share. Adjusted earnings were 39 cents per share, in line with a warning by the company on Oct. 31.

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Revenue rose 11 percent to $13.9 billion from $12.5 billion.

The company forecast fourth-quarter revenue of $14.6 billion to $15.0 billion and earnings per share of 40 cents to 42 cents. Analysts, on average, had been expecting fourth-quarter revenue of $14.9 billion and earnings per share of 41 cents to 43 cents before one-time items, according to Reuters Estimates.

Shaw Wu, an analyst at American Technology Research, said the results looked "OK" and that profit margins were slightly stronger than he had expected.

"It shows they still have some pricing and cost discipline," he said.

Commenting on the third-quarter performance, Chief Executive Kevin Rollins said, "Our operating performance was again exceptional by any comparable measure. ... However, we hold ourselves to higher standards."

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The company said it had about $442 million in one-time charges in the third quarter, including about $300 million for repairing faulty capacitors in business computers. It also paid for job cuts in Texas, the U.K. and Asia.

Round Rock, Texas-based Dell, whose direct-delivery model has helped it grow faster than the overall PC market for years, has had decelerating revenue growth for six straight quarters as it aggressively cut prices and faced tougher competition from rivals including Hewlett-Packard Co. and Apple Computer Inc.

Its shares have tumbled 31 percent this year on concern over revenue growth. The stock has lagged behind the Standard & Poor's Computer Hardware index by 27 percent. Dell shares trade at 16 times 2006 estimated earnings, about the same as Hewlett-Packard and below Apple's 29.

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Dell sold 9.2 million computers in the third quarter. High-end services revenue rose 36 percent, storage revenue rose 35 percent and revenue from servers rose 16 percent.

Sales outside of the United States rose 20 percent, making up 40 percent of Dell's worldwide revenue in the quarter. Asia Pacific and Japan revenue rose 20 percent, led by rapid expansion in China with unit growth of 46 percent.

The company plans to repurchase at least $1.7 billion in stock during the fourth quarter and spent $1.4 billion in the third.

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