Spending Slowdown Doesn't Affect Dell

Dell Computer continues to flourish despite continued sluggishness in corporate IT spending.

The company Thursday reported a profit of $561 million on revenue of $9.1 billion for its third fiscal quarter of 2003, ended Nov. 1. The profit was up 31% from the $429 million reported a year ago, while revenue was up by 22%, from $7.5 billion. Earnings per share were 21 cents, matching the company's forecast of six weeks ago and Wall Street's expectations, up from 16 cents a year earlier.

During the quarter, Dell gained share in the PC market, taking over the top spot from Hewlett-Packard. Dell's PC business accounts for about 80% of the company's revenue. The company saw strong sales of its Precision workstations and Latitude notebook computers. The number of workstations Dell shipped was up 37% in the United States for the quarter, while the number of notebook computers was up 26%. Dell is the top provider of workstations worldwide, with 40.5% of the market, according to Dataquest, a division of Gartner. The research firm says Dell shipped 149,004 workstations in the third quarter of the calendar year, compared with 81,125 from HP, 56,442 from IBM, and 52,774 from Sun Microsystems.

Dell's outlook for its fourth quarter is bullish, with revenue expected to be up 20% to $9.7 billion. The company is counting on growth in several key areas, including sales of low-end servers that are used in Linux clusters and storage. Other emerging areas for Dell include handheld computers and printers.

"There's an execution risk of extending into other areas, but so far they have been successful extending in other areas such as servers and storage," says Nick Nilap, an analyst with Fitch Ratings. Although there's a substantial amount of research and development that will go into Dell's printer products, Nilap says the vendor isn't strapped for cash and in the past has found ways to defray R&D costs by using commodity technology from partners such as Microsoft and Intel.