Dell's Earnings Rise 19%, Beating Estimates by a Penny

Updated from 5:10 p.m. EDT

Dell (DELL), the largest direct vendor of computers in the world, reported Thursday that its second-quarter earnings rose 19%, exceeding Wall Street's expectations by a penny, primarily because of a better mix of products as well as more favorable prices and component costs.

For the second quarter ended July 31, net income rose to $603 million, or 22 cents a diluted share, from $507 million, or 19 cents a share a year earlier. A consensus of computer industry analysts polled by First Call/Thomson Financial had forecasted earnings of 21 cents in the latest quarter.

Revenue for the Round Rock, Texas-based company rose 25%, to $7.67 billion, from $6.14 billion a year earlier. Many analysts, skeptical of Dell's projection of 30% sales growth for the full fiscal year, had cut their revenue estimates for the quarter because the company is not selling as many desktop PCs as before. Desktop PCs accounted for 51% of sales, compared with 60% a year ago.

Dell's Bumpy Ride One-year chart

"No one was as concerned with the bottom line because the desktop business is lower-margin," said Jim Poyner, an analyst with C.E. Unterberg, Towbin, who lowered his revenue estimate by $148 million a month ago to $7.7 billion. He rates Dell a strong buy and his firm has done no underwriting for the company.

In contrast, higher-margin businesses did better. Enterprise computing systems -- such as servers, storage products and workstations -- accounted for 19% of revenue, up from 16% a year ago, while notebook computers accounted for 30% of revenue, up from 24%.

Shares of Dell closed Thursday regular trading at 41 13/16, up 1/16 or 0.15%. In post-market activity, the shares were at 40 1/2, down 1 5/16, or 3%, according to Island ECN.

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