Despite storming figures that saw the company report its first $5,000m quarter, and just miss its first $10,000m half, putting it on track for close to $20,000m this year (see Company Results), chief executive Lewis Platt is not cheering his head off. He says he believes upward pressure on the cost of sales is likely to continue for the rest of the year and that the company faces a very mixed and uncertain economic environment, intense competition and rapid market changes. Total orders for the second quarter, to April 30, were 28.5% up at $5,370m; orders for computer products rose 32.9% to $4,120m, making it clear that the company, where computers accounted for less than half of the business only a few years back, is continuing progressively to become more and more a pure computer company. The rapid pace of growth remains crucually important, because cost of goods sold, as a percentage of net revenue, was 58.8% in the second quarter, compared with 53.6% a year ago, and put this down to to competitive pricing pressures, manufacturing ramp-ups for new products, and an ongoing shift in revenue mix to products with higher cost of sales as a percentage of revenue. Total employment during the quarter rose 700, but operating expenses went in the opposite direction from cost of sales, 30.3% of revenues compared with 32.5% in the year-ago quarter, as the company continued the remorseless cost-cutting drive. Still, the $1.38 a share for the quarter was a pleasant surprise for most analysts, whose estimates ranged from $1.10 a share to $1.35. Several analysts were confounded by the strong performance: only on Monday they had been muttering about how sustainable recent performance had been, and querying whether the share price had not run ahead of itself. In the event, the shares were expected to open two or three dollars up on the $79.615 close to Monday trading.
