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Dell Can't Get No Respect


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Outsourcing: Come Sail Away With IT (, May 17, 2004)
Google Bets the House on Banner Ads (, May 13, 2004)
Cisco's Job Shocker (, May 12, 2004)
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By Robert MacMillan Staff Writer
Friday, May 14, 2004; 9:33 AM

Dell Inc. executives are justifiably pleased about their first-quarter profit, but the PC maker's latest financial results are generating little more than middling enthusiasm from tech industry analysts. The numbers show a company that is holding its own against the various slings and arrows of the PC price wars, but at the same time is suffering from the high costs of doing business.

The most interesting take on the company's earnings comes from Dell's local newspaper, the Austin American-Statesman, which noted that cost and price trends caused the company's profit margin to drop to 18 percent from 18.3 percent last year. "It's their lowest operating margin in six quarters, when the economy is supposed to be getting better," said Brent Bracelin, an analyst with Pacific Crest Securities, according to the paper. (To be fair, various papers say it's their lowest operating margin in anywhere from five to seven quarters.)

The American-Statesman also cited Dell President Kevin Rollins as saying that the company is "aggressively pursuing growth in overseas markets, in part because of lower tax rates that translate to after-tax profits comparable to those in the United States." Dell's revenues were up to $11.5 billion, a million above analysts' expectations, the Dallas Morning News reported, quoting spokesman Mike Maher as saying that the company crossed the bar with "price cuts, promotions and other traditional tactics." Both Texas newspapers pointed out that higher chip costs hurt the company, but the Morning News let Morningstar analyst Rod Bare wax optimistic: "Dell is certainly not in trouble ... They're really in the driver's seat."
The Austin American-Statesman: Dell's Profit Jumps 22% in Quarter
The Dallas Morning News: Dell's net hits target, despite costs (Registration required)

And now to The Wall Street Journal for a recap of Dell's numbers: "The world's largest maker of personal computers said net income rose to $731 million, or 28 cents a share, for the quarter ended April 30, from $598 million, or 23 cents a share, a year earlier. Revenue climbed 21% to $11.54 billion from $9.53 billion." The Journal also wrote that the company was able to take advantage of a weak dollar against the euro to boost its foreign sales, and that sales to corporate clients rose to their highest rate in three years. But it's the chips, as we noted before, that are the real downer here. Rollins "attributed the margin decline to higher prices for memory chips along with stronger sales of lower-margin products. Mr. Rollins said that if memory prices had remained stable, Dell's higher revenue would have added a penny a share," The New York Times reported.
The Wall Street Journal: Dell Reports a 22% Increase in Net (Subscription required)
The New York Times: Strong Sales Bolster Dell, but Operating Margins Dip (Registration required)

A price war with Hewlett-Packard Co. on PCs, servers, storage and other computing systems also took a toll on Dell, The Los Angeles Times reported. Nevertheless, the newspaper said that the quarterly growth "keeps Dell on track toward its goal of posting revenue of $60 billion to $70 billion by 2007. Dell's revenue last fiscal year was $41.4 billion, a 17% increase from 2002." That's according to finance chief Jim Schneider, who held a conference call on the earnings yesterday.

Schneider highlighted another important performer for Dell: printers. "Dell's printer business, launched 14 months ago under a manufacturing agreement with Lexmark International Inc., has been stronger than anticipated, with sales of more than 800,000 in the first quarter, Schneider said. Dell's inkjet printers have garnered about 10% of the U.S. market, and its all-in-one printers have gained about 17%, he said. ... A steady stream of replacement ink represents the profit in printers. One in four Dell printers are sold with an additional ink cartridge, Schneider said."
The Los Angeles Times: Dell's Profit Up 22% as Sales Jump (Registration required)

Where the Jobs Are

One of Dell's other interesting comments, according to The Financial Times, is that it has added about 1,500 staff positions in the most recent quarter ... just not in the United States. That's a handy segue into a report from USA Today, which said that "the long freeze in U.S. Technology hiring appears over." The evidence? The recent Cisco Systems announcement of 1,000 new jobs opening up, more hiring at Accenture -- and the majestic pronouncement of Wells Fargo chief economist Sung Won Sohn that job losses have "definitely bottomed." Well, if Sung Won Sohn said it, that's like money in the bank!

"Companies are staffing up because customers are buying hardware, software and consulting services again. Hewlett-Packard says in a survey out Friday that 44% of small and midsize firms will spend up to 10% more on tech this year than last year. An additional 17% will spend up to 20% more," USA Today also reported. Here's the other shoe dropping, courtesy of the same newspaper: "Tech hiring has a long way to recovery. Growth is uneven. Struggling Gateway and Sun Microsystems recently announced thousands of job cuts. Telecommunications firms are still hacking payrolls. 'We're not seeing a huge, huge uptick,' says Gary Beach, publisher of CIO magazine." Stay tuned for further ambivalence...
The Financial Times: Dell Sees Rise in Revenues and Corporate Sales
USA Today: Tech Companies Kick up Hiring as Spending Grows

Dell at Home

And in a Texas tangent: Even if Dell's fortunes go south, the Austin metropolitan area will get some relief from the tech bust. The Statesman reported this morning that Apple Computer Inc. will take over 275,000 square feet of office space that was once occupied by EDS. Austin real estate brokers also are finding occupants for several buildings that Dell had planned to lease before company executives backed out. New tenants include chip design firm Q Logic and the venerable Texas Instruments.
The Austin American-Statesman: Computer Company to Take up 275,000 Square Feet Vacated by EDS

Dell Footnote: The company is a major seller of hardware and services to the federal government, so much so that Dell was ranked at No. 13 on a list of the top federal IT contractors, with $854 million in sales to Uncle Sam. Washington Technology, a magazine owned by The Washington Post Co., published its Top 100 list earlier this week.

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