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Friday, February 29, 2008

Dell Profit Falls Short, Stock Down Late

Dell reported a 6.5% drop in net income in the quarter ended Feb. 1 to $679 million from $726 million the same period a year ago. Contributing to the decline was $83 million in expenses related to research and development stemming from the recent acquisitions of EqualLogic and Everdream, and $54 million in expenses related to severance costs and facility closures from the company's restructuring efforts

The world's second-largest personal-computer maker, which has been moving beyond direct sales into the retail sector to better compete with No. 1 Hewlett-Packard Co. (HPQ), warned that it could incur costs as it realigns its business to boost growth and profitability. In recent after-hours trading, Dell shares were at $20.07, down 3.8% from Thursday's close. Dell's stock has lost nearly a third of its value since October as recession worries hurt the technology sector.

Dell reported net income of $679 million, or 31 cents a share, for the quarter ended Feb. 1. In the prior-year period, Dell's net income was $726 million, or 32 cents a share. The latest quarter included 11 cents in charges and stock-compensation costs.

Revenue rose 11% to $15.99 billion from $14.47 billion. Analysts polled by Thomson Financial had expected the Round Rock, Texas, company to post earnings, excluding items, of 36 cents a share on revenue of $16.27 billion.

Gross margin rose to 18.8% from 17.1%.

U.S. consumer revenue grew 12%, driven by a 25% increase in shipments, aided by new product offerings and the company's expansion into retail. "Unit share increased by over three points - the largest quarterly gain in over three years," Dell said.

Revenue at the company's mobility unit, which sells laptops, rose 24%.

Looking ahead, Dell warned it will "continue to incur costs" as it realigns its business to improve growth and profitability. "While the company believes these actions are necessary to drive long-term sustainable value, they may adversely impact the company's near-term performance." Dell also said results could be "adversely impacted by more conservative spending by its customers."

However, Dell said it is "benefiting from accelerating growth and an improving mix of products and geographic regions," and it "expects to achieve substantial improvements in cost and productivity."

Dell said earlier this month it is cutting more than 1,200 jobs, about 900 of them at a call center in Canada. That followed last year's announcement that Dell would lay off 10% of its work force.

In November, Dell warned that its near-term performance might be hurt by further restructuring and a slower decline in component costs. It said the restructuring moves were "necessary to drive long-term sustainable value." Dell also warned it might be hurt by a seasonal shift in mix.

Before Thursday's results, some observers had said Dell was starting to see light at the end of the tunnel, after ceding its crown to rival Hewlett-Packard as the world's largest computer maker.

In January, as part of its effort to halt declining market shares and falling sales, Dell added Best Buy Co. (BBY) to the list of retail chains which now sell its computers. The list had already included Wal-Mart Stores Inc. (WMT) and Staples Inc. (SPLS). Also in January, tracking firm Gartner Inc. said Dell's worldwide PC shipments grew 17% in the fourth quarter.

Dell, which has resumed its stock-buyback program following the end of an internal accounting probe, said it spent $4 billion to buy back 179 million shares of common stock in the quarter. It said it expects to buy back at least $1 billion of stock in the first quarter.

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