Dell Proves Its Downturn Strategy Works - TheStreet

Updated from 5:14 p.m. EDT


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was slotted for success Thursday when it reported first-quarter results, and it lived up to the billing.

Dell enjoys the damp, dark place where the PC market is currently hiding. Not because it wouldn't love bigger sales, but because the computer maker has a particular knack for making the best of bad situations -- maintaining livable margins, grabbing PC market share and expanding its power in the low-end server market where others once thrived.

Early this year, when rivals followed their 2001 complaints of poor visibility with platitudes about cautious optimism, Dell predicted it would do fine, despite frozen IT spending.

The company delivered, beating analysts' and its own estimates in posting $8.07 billion in revenue for the first quarter of its fiscal 2003 -- a sequential improvement in what is usually a slow quarter.

The company posted a profit of 17 cents a share, allowing it to beat Wall Street consensus estimates of $7.87 billion in revenue and 16 cents a share in pro forma earnings, as gathered by

Dell shares made little progress in Thursday trading, rising less than 1% before the report. Immediately after the report, shares were rising modestly. Dell has been a leader in the recent big-cap tech charge, rising more than 17% the past 10 days.

The day before its April 4 analyst meeting, Dell promised to do better than its previously projected 3% to 5% revenue decline from the fourth quarter of fiscal 2002's $8.06 billion in revenue. Back then, Dell thought sales would slip 2% in the seasonally slow quarter to around $7.9 billion, but earnings would keep up. In the end, both matched up almost exactly sequentially with $8.06 billion in sales and 17 cents a share profits notched in the fourth quarter of fiscal 2002.

COO Kevin Rollins predicted that despite an industrywide decline in unit shipments and declining revenues in the fiscal second quarter currently under way, the company's sales would increase to $8.2 billion. Using gains in operating margin, Dell hopes to boost earnings to 18 cents a share. Dell's operating expenses fell quarter over quarter from 10.2% of sales in the fourth quarter to 9.9% of sales in the first. Those second-quarter projections represent an important year-over year advance in both sales and profits, which most in the PC industry haven't seen in many quarters.

Dell's advances in its traditional weak spot -- consumer sales -- continued as the direct seller saw a startling 26% gain in revenue from the year-ago period. Overall U.S. shipments grew 17% from the first quarter of 2002 to 2003.

Dell managed impressive year-over-year gains in international shipments just days after


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reported continuing weakness around the globe. Japanese shipments grew 8% over the first quarter of2002 in Asia Pacific/Japan, while European, Middle Eastern and African shipments grew 5%.