Dell: No Easing Up on PC Price-Cutting

Dell Computer beat Wall Street earnings estimates, but a continuing price war amid an industrywide slump pushed profits down 36 percent. Michael Dell, however, says there are no plans to 'lighten up' on price-cutting.

Dell Computer Corp. posted earnings slightly higher than Wall Street analysts had been expecting, although a continuing price war amid an industrywide slump pushed profits down 36 percent from a year ago.

Company founder Michael Dell sought to downplay the perception that the computer maker was sacrificing profits to subsidize lower pricing, arguing that the poor performance of rivals created an "illusion of increased aggressiveness."

But during a conference call with market analysts yesterday, Dell said he has no plans to "lighten up" on price-cutting to shore up profit margins, which have fallen from around 23 percent to 17 percent in the last year.

"Weve just been following component prices down, and were going to continue to do that," he said. When asked if he might ease off price cuts in the enterprise space, which accounts for the bulk of the companys revenue, Dell said, "Thats the last place were going to lighten up."

For the third quarter, the PC maker based in Round Rock, Texas, reported net income of $429 million, or 16 cents a share, a penny higher than consensus Wall Street expectations, according to Thomson Financial/First Call. For the same period last year, Dell posted a profit of $674 million, or 25 cents per share.

Revenues totaled $7.5 billion for the quarter, about $100 million lower than the previous quarter, and 10 percent below a year ago, but were within the range the company predicted in August.

Amid an industrywide downturn in sales and a weakening U.S. economy, Dell was the only top 10 computer maker to increase total product shipments during the quarter.

In addition, the worlds largest PC maker continued to increase its share of the U.S. market. Over the past four quarters, Dell said, the companys U.S. market share has grown from 20 percent to 26 percent.

In the worlds largest national market, the company ranks No. 1 in workstations and both notebook and desktop computers, as well as servers.

During the third quarter, Dell posted strong growth in servers, with U.S. unit sales up 18 percent, which contrasts with an overall 15 percent drop in total server shipments, the company said.

Dells services revenue in the quarter totaled $766 million, up 15 percent from last year. Total revenue from company services and peripheral products was $1.7 billion, up 16 percent and accounting for a record 23 percent of net sales.

Looking at a geographic breakdown, Dells unit sales grew most strongly in Asia-Pacific and Japan, but was relatively flat in the United States.

In the Americas, Dell shipments rose 2 percent from last years third quarter. U.S. volumes were up 1 percent, a relatively strong showing considering overall industry sales were down 19 percent.

Shipments in Europe, the Middle East and Africa remained strong, Dell reported, rising 21 percent despite a 10 percent decline in total market sales in those regions. One of the areas experiencing the robust growth was workstation sales in Europe, with unit sales surging 45 percent over a year ago.

Dells growth rate was highest in Asia-Pacific and Japan, where company shipments were up 28 percent in a market that declined 9 percent. Company server volumes in the region increased 37 percent. Sales in China and Japan, both key markets, climbed 16 percent and 11 percent, respectively.

Looking ahead, Dell said he expects revenue will rise slightly and that fourth-quarter earnings will amount to about 16 cents a share, in line with analyst expectations.