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Amid Growth, Dell Misses Q4 Estimates

UPDATED: Citing increased expenses and a number of one-time charges related to everything from acquisitions to legal affairs, Dell's profits fell a little short in the fourth quarter, and it warned that despite many improvements, the company wasn't out of the woods yet.

Revenue was up a healthy 10 percent, to $16 billion for the quarter, although that fell a little short of expectations as well.

[cob:Related_Articles]Net income, however, dropped to $679 million, or 31 cents per share. A year earlier, the company posted income of $726 million, or 32 cents per share.

Among the one-time charges: $83 million or four cents per share, related to the write-off of in-process R&D from EqualLogic and Everdream; $54 million in expense, or two cents per share, related to business realignment; $27 million in expense, or one cent per share, in SEC investigation-related costs; $11 million in amortization expense of purchased intangible assets; $58 million in a reduction in a litigation reserve and a $44 million reduction in stock awards for people who had left the company before their shares were fully vested.

Analysts had expected profits in the range of 36 cents per share and revenue of $16.3 billion, according to Thomson Financial.

Gross profit margin grew slightly to 18.8 percent from 18.5 percent in the third fiscal quarter, but was offset by a 18 percent increase in operating expenses year-over-year. That came despite a reduction in the number of positions at the company.

During a conference call discussing the results, CEO Michael Dell said he hadn't wanted to cut too deeply into operating costs for fear it would hurt the company's moves into retail, channel partnerships and emerging markets.

"I'm encouraged that we grew slightly faster than the industry in the fourth quarter, and it's clear we have a lot to do on our cost structure," said Dell.

"We could have had lower operating expenses, but we also risked screwing things up," he said. "We wanted to get businesses all going in the right direction. We had a lot of work to do on product launches."

Revenue from laptop sales rose 24 percent in the fourth quarter from a year ago, in part due to recent moves into retail, such as Best Buy. Desktop computer revenue rose two percent. Dell said laptop sales are outpacing desktops by an order of six to one.

Dell also said it plans to have eliminated 8,800 jobs by the time its reductions are complete.

During the past year, it cut 5,300 jobs, although it added 2,100 new people in customer-facing positions.

"We know we have more costs to take out, and we are pursuing those," said Don Carty, vice chairman of the company. "We made nice progress at the end of the fourth quarter."

With $3.9 billion in cash flow for the year, Dell put some of that money into buying stock. It spent $4 billion total this year to buy back 179 million shares, or eight percent of outstanding stock, and plans to buy back another $1 billion worth, said Carty.

Michael Dell acknowledged that his company's chief competitor, HP, has eight times the retail presence and many more SKUs available.

But he pointed out that his company is just beginning in retail.

"Going from zero to a million units sold in a couple of quarters is pretty darn fast," he said, promising further retail expansion and product choice.

Another element of Dell's growth strategy is embracing emerging markets around the world, something it had been slow to do. Brazil, Russia, India and China saw a combined 36 percent revenue growth, with Indian sales up 57 percent alone, and China up 32 percent. Dell's sales in Poland also grew an impressive 70 percent.

Carty said those trends may be needed to offset softness in the U.S. market.

"I wouldn't be surprised if the U.S. is the slowest growing region for the next few quarters, given what is happening with the economy," he said.