Lucrative corporate sales boost Dell

Dell’s first-quarter profit soared 177 per cent to $945m as lucrative sales to large businesses outweighed weakness in the consumer market for personal computers.

The Texas-based technology company said the better than expected results vindicated recent acquisitions in security and storage gear as well as its decision to simplify its PC line-up.

“Our substantial profit increase demonstrates that our strategy is working and our execution is improving,” said Michael Dell, chief executive.

Consumer revenue fell 7 per cent to $3bn, but operating profit margin on that side of the business improved to 4.5 per cent.

Lower component costs were a significant factor, bringing product costs down 9 per cent from a year earlier. But Dell executives said it would be “dangerous” to credit those improvements for the entire swing in PC profitability. They said better supply-chain management and a shift to higher-end PCs also helped.

“We will continue to prune and eliminate lower-margin businesses,” said Brian Gladden, chief financial officer.

Sales to large business increased 5 per cent to $4.5bn, while sales to government entities shrank 2 per cent to $3.8bn. Smaller business revenue rose 7 per cent to $3.8bn. Overall revenue was roughly flat, gaining 1 per cent to $15bn.

Dell raised its outlook for the year to forecast revenue growth of between 5 and 9 per cent and an increase in non-GAAP operating income of between 12 per cent and 18 per cent, up from an earlier forecast of 6-12 per cent.

The optimism stood in contrast to rival Hewlett-Packard’s lowered forecast and sent Dell shares up by more than 5 per cent in after-hours trading.

Both Dell and HP reported sharp declines in PC sales to consumers, but Dell said its move toward richer services contracts with companies was on track, while HP said it needed to do more to move away from low-margin outsourcing deals.

Dell in December agreed to buy Compellent Technologies, a data storage company, for $960m in cash.

Dell said it had suffered minimal effects from the disasters in Japan and even saw the potential for improvement when the recovery increases demand.

Profit a year earlier was depressed $140m by settlements with the Securities and Exchange Commission and shareholders who sued.

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