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February 16, 2011 3:11 am
Shares in Dell jumped nearly 6 per cent in after-hours trading on Tuesday after its latest quarterly earnings raised hopes that the world’s third-biggest PC maker’s long-awaited turnround was reaping rewards.
|Sales||Net income||Earnings per share||Dividend|
|↑ 5%||↑ 177%||↑ 182%||–|
The US company reported fourth-quarter profits that far exceeded Wall Street expectations, as profit margins jumped on stronger sales of its most profitable products.
Dell executives attributed the improvement to the company’s inroads with large corporate and small business clients, along with its move into higher-priced products such as servers, data storage and technology consulting services, which accounted for 29 per cent of the company’s revenue.
“Our teams have been focused on expanding our higher margin business,” said Brian Gladden, Dell’s chief financial officer.
Dell reported fourth-quarter net income of $927m, or 48 cents a share, on $15.7bn in revenue, up from 17 cents per share on $14.9bn in revenue a year before. On a pro-forma basis – on which Wall Street judges the company – earnings came in at 53 cents a share, compared with analysts’ forecasts of 37 cents.
Gross margins rose to 21 per cent, against 16.6 per cent last year. Analysts expressed some concern that the improved margins were due mainly to lower component prices, and would be unsustainable in the coming fiscal year. But Dell executives said that other factors had played an equally important part.
“We also embarked on a real change in our supply chain about two years ago and have really made some remarkable progress,” said Michael Dell, chief executive. “That showed up in second half of the year.”
Efforts to improve the training and efficiency of sales people are also bearing fruit, Mr Gladden said. The company’s operating profit margin rose to 7.3 per cent this quarter, compared with 3.4 per cent in the same quarter last year.
Improved sales of Dell’s servers and storage equipment to public sector clients helped counterbalance slower demand for other products from the same clients. Consumer sales were down 8 per cent from a year before, when the launch of Windows 7 boosted demand. Mr Gladden said Dell hoped to increase sales to consumers this year, in part with new smartphone and tablet products.
Its focus would be on expanding into more profitable business markets, in part through acquisitions. “We closed six transactions and announced nine acquisitions this year,” he said.
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