Dell Rises as Corporate Sales Provide Company Edge Over HP

Dell Inc. (DELL) rose as much as 6.7 percent after its profit topped analysts’ estimates, marking the second straight quarter that the company’s results outshined those of rival Hewlett-Packard Co. (HPQ)

Net income surged to $945 million, or 49 cents a share, from $341 million, or 17 cents, a year earlier, Dell said yesterday. Excluding certain costs, earnings were 55 cents in the period, which ended April 29. Analysts estimated 43 cents on average, according to data compiled by Bloomberg.

Dell’s emphasis on business customers, bolstered by an expansion into corporate data centers, is helping it withstand a slump in consumer demand. A slowdown in home-computer sales has roiled industry leader Hewlett-Packard, which cut its annual sales forecast earlier yesterday. While Dell also saw its consumer revenue drop, the company said it was able to squeeze more profit out of each sale.

“They executed much better than expected despite strong headwinds,” said Shaw Wu, an analyst at Sterne Agee & Leach Inc. in San Francisco. Dell gets about 20 percent of sales from consumers, compared with about 30 percent at Hewlett-Packard, said Wu, who has a neutral rating on Dell shares.

Dell, based in Round Rock, Texas, gained 85 cents, or 5.4 percent, to $16.75 at 4 p.m. New York time in Nasdaq Stock Market composite trading. The shares have risen 24 percent this year.

‘Role Reversal’

Dell’s gain compares with a 1.1 percent decline for Hewlett-Packard shares in New York Stock Exchange trading today, after a 7.3 percent plunge yesterday. HP lopped $1 billion from its full-year sales forecast, predicting revenue of $129 billion to $130 billion. Excluding some costs, earnings will be at least $5 a share, Palo Alto, California-based Hewlett-Packard said. Analysts had estimated sales of $130.3 billion and earnings of $5.24 on average.

The divergence in performance is a turning point for Dell, which has lost personal-computer market share to Hewlett-Packard and suffered a worse stock performance every year from 2005 to 2009.

“Dell a few years ago was a gross underperformer,” Wu said. “You’re seeing a role reversal here.”

Dell said operating income will increase 12 percent to 18 percent this year. When the company last reported its earnings in February, it predicted a range of 6 percent to 12 percent. Dell reiterated its full-year sales growth forecast of 5 percent to 9 percent, indicating revenue of at least $64.6 billion.

Consumer Slowdown

Dell’s February results also pleased investors, sending the stock up 12 percent. Shares of Hewlett-Packard, meanwhile, declined 9.6 following its previous report.

Sales last quarter rose less than 1 percent to $15 billion, Dell said. Analysts had estimated $15.4 billion on average. Consumer revenue declined 7.5 percent to $3 billion.

“Revenue’s light in general,” Chief Financial Officer Brian Gladden said in an interview. “Consumer demand was a bit weaker than expected. But we’ve dramatically improved the profitability of the consumer business.”

Dell also is seeking acquisitions in an effort to tap the market for cloud computing, which delivers software and data over the Internet. It bought data-storage company Compellent Technologies for about $800 million in February.

“We’re moving much more into the core of IT and the data center, increasingly with our own intellectual property,” Chief Executive Officer Michael Dell told analysts on a conference call yesterday.

The company also has benefitted from businesses replacing older PCs with new ones running Microsoft Corp.’s Windows 7 operating system.

The broader PC market declined last quarter. Global shipments fell 3.2 percent, hurt in part by some consumers buying tablets instead, research firm IDC reported last month. In the U.S., shipments dropped 10.7 percent from a year earlier to 16.1 million.

Dell had 12.8 percent of the global PC market last quarter, ranking behind Hewlett-Packard and ahead of Acer Inc., according to Framingham, Massachusetts-based IDC.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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