Dell’s Tight Grip Helps Earnings Results

UPDATED: Thanks to some financial discipline and cost-cutting, Dell was able to report fiscal third-quarter earnings that exceeded Wall Street expectations. This, despite a year of sales being off.

The company reported a fiscal third-quarter profit of $727 million, or 37 cents a share, on revenue of $15.16 billion. Analysts surveyed by FactSet Research, had forecast the firm to earn 32 cents a share on $16.3 billion in sales.

Dell’s earnings rose 18 over the same quarter in 2007, where it earned $616 million, but dipped five percent from the $766 milion, or 34 cents a share, it earned in the second fiscal quarter of this year.

Where Dell (NASDAQ: DELL) saved money is through internal cuts. Sales, general and accounting expenses dropped 12 percent compared to the same quarter in 2007. Dell has been on a cost-cutting initiative for a while.

The PC industry has kept itself going as the economy slowed this year by cutting prices to almost unsustainable levels, but Dell said it has not taken that route. “We would like to gain share but are more focused on solid profitability,” said chairman and CEO Michael Dell on a conference call with analysts following the release of the figures.

Feeling price pressure

Dell’s revenue was down three percent on unit-shipment growth of three percent. Clearly Dell is feeling price pressure, because its revenue was off in every single category. Desktop PC revenue fell 17 percent between the second and third quarter of this year, and 14 percent from last year. Mobility, which is doing much than desktops, was flat between Q2 and Q3 and up three percent from 3Q08.

Software and peripherals revenue rose two percent over last year, servers and networking dropped five percent, services grew seven percent and storage revenue was flat.

The decline in revenue was counterbalanced by an even greater drop in costs. “While receivables were down, payables were down more as we reduced spending. As shipments and procurement return to normal, we expect those levels to return to normal,” said Brian Gladden, senior vice president and chief financial officer.

Dell saw an 11 percent decline on operating expenses compared with the same period in 2007. Part of this came from a reduction in headcount with 2,200 staffers let go in the quarter. Overall, Dell has reduced its total headcount by 11,600 after all of its recent acquisition activity including the $1.4 billion purchase of EqualLogic.

The company did not give forward guidance on the upcoming quarters, so Dell would only talk generally. “We don’t know what the growth of the industry will be next year, so we’re planning a conservative set of assumptions on the belief it’s easier to dial it up than dial it down,” he said.

Added Gladden, “We’re choosing profit over growth. We believe changes to our cost structure will help us achieve both over time.”

(Update includes comments from Dell conference call with analysts.)

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