Dell Q4 margins miss Street view, shares fall

SAN FRANCISCO, USA: Dell Inc reported fiscal fourth-quarter gross margin below Wall Street analysts' forecasts as costs rose for memory chips and other components, and the company's shares fell 5 per cent. The company reported a decline of 4.8 per cent in profit compared to the year-ago period.

While Dell's revenue topped expectations on strong laptop sales, the margins reflected the company's reliance on the personal computer hardware market. Larger rival Hewlett-Packard Co, which posted strong results on Wednesday, is more diversified than Dell, providing services as well.

"I think people are concerned on the gross margins, clearly the revenue is strong, they had strength in the PC business as well as in the servers business, but there wasn't as much leverage as maybe people had expected," said Cross Research Managing Director Shannon Cross.

She also said that Dell's operating expenses did not fall as much as some investors had hoped.

Dell, the world's No. 3 PC maker, said on Thursday that net profit fell to $334 million, or 17 cents a share, in its fiscal fourth quarter ended January 29, from $351 million, or 18 cents a share, in the year-ago period. Excluding items, profit was 28 cents a share, a penny above the average Wall Street forecast, according to Thomson Reuters I/B/E/S.

Revenue rose 11 per cent to $14.9 billion, also beating the average estimate of $13.8 billion. But adjusted gross margin was 17.4 per cent, compared with analysts' average expectation of 18 per cent.

On a conference call with reporters, Dell Chief Financial Officer Brian Gladden said gross margins in the quarter were hurt by a bigger mix of lower-cost PCs for consumers, and some higher component costs, including DRAM memory.

The company's adjusted operating expenses were 12.1 per cent of revenue in the quarter, versus 12.8 per cent a year ago.

Dell, which is heavily dependent on PC sales to U.S. businesses, has struggled during the economic downturn - more so than HP, which has a more diversified business model with income from software and technology services. HP's margin was 22.8 per cent in the quarter ended January 31.

But Gladden said there were positive overall signs in the technology industry.

"We saw some very encouraging market demand growth return to the business in the fourth quarter," he said. The CFO added that Dell is "cautiously optimistic" about how the new fiscal year is starting.

Shares of Round Rock, Texas-based Dell closed 1.98 per cent higher at $14.43 on Nasdaq, and fell to $13.72 in extended trading following the results.