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Dell Tops Raised Expectations

The PC maker meets earnings expectations and says it will outperform the industry in the first quarter.

Updated from 4:45 p.m. EST


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made believers on the Street.

Even after the company raised its revenue estimates in January for the fourth quarter of its fiscal 2002 from $7.6 billion to $8 billion, Wall Street kept its expectations down. After the closing bell Thursday, Dell reported $8.1 billion in sales, eclipsing consensus estimates of $7.87 billion, as tallied by, and reminding investors that it is the expert when it comes to executing in a difficult PC sales environment.

Dell credited its consumer personal computer business for an 8% sequential increase in revenue that helped the PC market share leader put together net income of $456 million, or 17 cents a share as calculated by generally accepted accounting principles. That figure met Street estimates and was a penny better than the third quarter's finish.

In the fourth quarter of fiscal 2001, Dell scored revenue of $8.67 billion and net profit of $508 million.

Dell shares dropped 1.9% in Thursday trading to $26.81. After hours, the company's shares were up 1.5%, according to Instinet.

Management is hoping that strength in both its consumer and corporate businesses will help it kick part of the typical seasonal downturn. The company posted an outlook for its first quarter of fiscal 2003 that includes a 3% to 5% fall in revenue to a range of $7.6 billion to $7.8 billion, compared with a historical decline of 10% sequentially from the fourth to the first quarter.

The company forecast 16 cents a share in first-quarter earnings and plans for gross margin to remain steady with the fourth quarter's 17.6% level. That 17.6% fourth-quarter finish is flat sequentially with the third quarter, as Dell had predicted.

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Responding to the good quarters delivered by competitors such as






, Dell addressed concerns that perhaps its rivals are gaining ground. Dell punished its peers during the past year by passing along component price declines that President and COO Kevin Rollins said reached a rate of a 1% reduction a week in 2001. But management insists that only 25% of its grueling price-slashing on computers came from cheaper component prices.

Rollins argued that "we have shifted most of our guns to other areas," such as manufacturing efficiencies, consolidation of locations, tech support and call-center operations. According to Rollins, that list creates opportunities "larger than the cost reductions we had last year. "Management also believes that component price declines have slowed greatly, but does not think prices have fully stabilized yet.

Demand from stingy corporate customers has leveled out, however, according to CFO Jim Schneider. On that note, CEO Michael Dell expressed optimism that corporations loaded with machines three years or older would be forced to upgrade soon. The CEO sang the praises of Windows XP, which he says is on 49% of all Dell products shipped, much higher than units sold to consumers, XP's target audience. Dell agreed, however, that corporate spending is "very dependent on the economy."

The company also considered it a possibility that the consumer segment -- which had sequential revenue growth of 56% -- would continue a revival begun in the third quarter of fiscal 2002.