Dell profit drops 28 pct

SAN FRANCISCO (Reuters) - Dell Inc.<DELL.O> <DELL.O>> on Thursday said quarterly profit fell 28 percent and set a revenue forecast that left analysts asking whether the company had lost the growth momentum of past years.

Net income for Dell's fiscal third quarter ended October 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 profit warning on October 31.

Analysts questioned whether the company could regain the pace of past periods when revenue climbed 16 percent to 18 percent as Dell sold low-cost computers directly to consumers, bypassing retailers. As the focus on inexpensive computers failed to spur growth rates, the company has recently added high-end computers to boost profit.

Shares dropped slightly after Chief Executive Kevin Rollins said 9 percent to 11 percent revenue growth, the fourth quarter target, was "a very healthy growth rate for a company our size" but declined to say whether the range was a long-term forecast.

The quarterly growth rate would be about half the rate of past years, and prompted analysts to ask whether Dell was cutting its forecast.

"Is Dell's growth target for the January quarter representative of its longer-term growth, or at least fiscal-year 2007 growth?," analyst Laura Conigliaro of Goldman, Sachs Inc. said in an investor note after earnings were reported. "Can Dell maintain current margins?"

Rollins also backed away from Dell's earlier target of hitting $80 billion in annual revenue in three to four years, leaving the time frame open.

Revenue rose 11 percent to $13.9 billion from $12.5 billion, down from growth of around 18 percent in past quarters but in line with the company's October 31 announcement. Excluding one-time charges, profit rose 12 percent, and the gross profit margin, excluding one-time charges, edged up to 18.6 percent.

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.

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. <HPQ.N> and Apple Computer Inc. <AAPL.O>.

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.

The company in the third quarter realigned its U.S. consumer business, the main source of its revenue problems, and cut jobs in Texas, the U.K. and Asia. Rollins said analysts' estimates of about 1,000 job cuts were "in the ball park of reductions."

Rollins told reporters on a conference call that the company had "rebalanced" its business mix in the third quarter to put more emphasis on high-end computers such as the XPS line introduced in September. Sales of XPS computers grew at twice the rate of Dell's base models, he said.

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. The rest went toward job cuts and other restructuring costs.

Dell sold 9.2 million computers in the quarter. High-end services revenue rose 36 percent, storage revenue rose 35 percent and revenue from servers rose 16 percent. Revenue in the U.S. consumer business fell 2 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.

Shares fell 1.2 percent or 34 cents to $28.87 in after hours trade on Inet.

(With additional reporting by Duncan Martell in San Francisco)