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February 16, 1999


By CBR Staff Writer

Dell Computer Corp posted fourth-quarter earnings Tuesday that met Wall Street expectations and announced yet another stock- split, but said that the quarter could have been better. The Round Rock, Texas direct marketer of personal computers reported net income for the quarter up 49.1% year-over-year at $425m, or $0.31 per share – matching the consensus estimate of analysts surveyed by First Call. Revenue for the period rose 38.4% to $5.17bn. For the full year, net income rose 54.7% to $1.46bn on revenue up 48% at $18.24bn, while earnings per share rose 64.1% to $1.05. Following some well-publicized concern last week that things might be slowing a bit for the high-flying company as it faces stiffer competition, Dell admitted that revenues for the quarter didn’t meet its internal expectations. Some analysts were expecting as much as $5.6bn in sales for the quarter. On a conference call with analysts, chief financial officer Tom Meredith said that the company didn’t manage pricing issues as effectively as it could have and consequently missed out on some $200m in revenue and about a penny in EPS. Meredith described the decision not to fully pass on to customers the savings in certain component costs as a negative, an opportunity missed to drive growth – the company’s foremost concern. As a result of the decrease in costs and fewer staff being added during the quarter, operating expenses declined to 11% from 11.4% a year ago. Net margins improved to 8.2% from 7.6% in the year-ago quarter, while gross margins rose to 22.4% from 22.0%. The pricing decisions in question – which mainly affected corporate systems – were actually made in the third quarter, the company said, and were corrected during the fourth quarter, but too late to book any revenue from two subsequent large corporate deals. Meredith insisted that the pipeline looks fuller now, however than it has in recent memory. Geographically, revenue rose 39% over the year- ago quarter in the Americas region, 40% in Europe and 30% in the Asia-Pacific region, including Japan. Internet sales continued to boom for Dell, tripling in the past 12 months to roughly $14m per day. The company largely dismissed analyst’s concern about slowing growth and increased competition and insisted it was very bullish about fiscal 2000. Meredith said that Dell’s growth was more than three times that of rival Compaq Computer Corp. Chief executive officer Michael Dell said the company is well positioned for continued industry-leading growth in the coming year, and pointed to the stock split announcement as proof of his confidence in its prospects going forward. The split, which will be issued March 5, is the company’s seventh in as many years and sixth in the past three-and-half years, will be issued on March 5.

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