Dell Jumps After Company Gains in Data-Center Market
Dell Inc. jumped the most since December 2008 on the Nasdaq Stock Market after fourth-quarter profit topped estimates and the company made headway in the market for data centers.
Excluding some costs, profit was 53 cents a share in the quarter, which ended Jan. 28, Round Rock, Texas-based Dell said yesterday. Analysts in a Bloomberg survey had estimated 37 cents on average. The company also forecast annual sales growth that exceeded projections.
Dell, the third-largest personal-computer maker, is counting on a boom in cloud computing to help fuel its next wave of growth. Chief Executive Officer Michael Dell has used acquisitions to offer a broader range of storage, software, security and services, which often carry higher profit margins than PCs. The company expects to keep making deals in a bid to double sales from the data-center business to $30 billion.
“The epicenter of the company has really shifted to these other areas and away from the PC,” Dell said on a conference call. “If fiscal year ‘11 was about getting operationally fit, then fiscal year ‘12 will be about leveraging this strength.”
Dell shares climbed $1.65, or 12 percent, to $15.56 at 4 p.m. New York time on the Nasdaq. The stock has risen 15 percent this year.
Michael Dell, the company’s founder, has spent the past four years turning around the business after growth stalled and it lost its lead in PCs to Hewlett-Packard Co. Rather than trying to regain its crown in that market, he’s sought to diversify the business.
Extending the rally depends on whether Dell can grow as quickly as forecast while preserving profitability, said Shannon Cross, an analyst at Cross Research in Livingston, New Jersey. It also will need to acquire companies without overpaying, she said. Dell’s competitors in the data-center market, including HP, International Business Machines Corp., Cisco Systems Inc. and Oracle Corp., have deeper pockets than Dell does, she said.
“Part of the challenge with Dell is if they go after something larger that other people want, they’re going to get outbid,” said Cross, who has a “hold” rating on the stock. Dell also will have to grow faster than the corporate-computing industry to dislodge entrenched competitors, she said.
In fiscal 2012, which ends in January, Dell expects sales growth of 5 percent to 9 percent. That would represent $64.6 billion to $67 billion, compared with an average analyst projection of $64.4 billion.
While data-center demand grows, Dell also is benefiting from corporate customers replacing older PCs with new models running Microsoft Corp.’s Windows 7 software. That surge will last a number of quarters, Chief Financial Officer Brian Gladden said in an interview.
“The corporate refresh continues,” he said. “This is a process that’s going to go on now for a while.”
Corporate spending is helping Dell offset a broader slowdown in the PC industry, said Abhey Lamba, an analyst at ISI Group in New York.
“Given Dell’s exposure to corporate PC shipments, we believe the company benefitted from the acceleration in enterprise shipment growth during the quarter, despite lackluster performance by the PC industry,” Lamba said in a report earlier this month. He has a “hold” rating on Dell.
Global PC shipments rose 3.1 percent last quarter, missing projections, as consumers held back on holiday purchases, according to research firm Gartner Inc. Dell ranked third in the industry, after HP and Acer Inc., Gartner said.
Dell’s net income almost tripled to $927 million, or 48 cents a share last quarter, from $334 million, or 17 cents, a year earlier. Sales rose 5.3 percent to $15.7 billion, matching the average projection of analysts.
In India, sales jumped 37 percent during the quarter, outpacing the 21 percent growth in Dell’s larger Chinese business. Dell has run a successful Indian marketing campaign, called “Take Your Own Path,” profiling businesspeople and artists in the country who use its products, said David Frink, a company spokesman.
Sales in Brazil, Russia, India and China combined also grew 21 percent in the fourth quarter, Dell said. The so-called BRIC countries accounted for 13 percent of total revenue, or more than $2 billion.
The PC industry has been grappling with a design flaw in one of Intel Corp.’s new chips -- a problem that Dell played down yesterday. Intel, the world’s largest maker of computer processors, halted shipments of the product until later this month, when a new version will correct the malfunction.
The defective chip didn’t affect Dell’s sales in the fourth quarter, and it won’t make a difference in fiscal 2012 either, Gladden said. Dell put some products using the chips on hold until Intel provides a fix, he said.
The flaw affects four products sold under Dell’s XPS, Vostro and Alienware brands, Dell said earlier this month. The company is working with customers who bought them.
Dell still gets more than half its sales from desktop and notebook computers. It’s using acquisitions to diversify into cloud computing, which relies on the Internet to deliver software and data. On Dec. 13, Dell said it will buy data- storage supplier Compellent Technologies Inc. for $960 million.
The company also plans to broaden its tablet-computer line. It will deliver devices with 10-inch screens running Windows and the Honeycomb version of Google Inc.’s Android software this year, said Michael Dell, 45. Meanwhile, the company is eliminating lower-priced consumer PCs from its lineup.
“Profit growth is more important than revenue growth, and that will be the defining philosophy that we use,” Dell said.
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