Dell Computer Corp. edged analysts’ third-quarter earnings expectations as sales of its high-end products skyrocketed. But while analysts foresee continued healthy growth for the PC giant, they don't expect the company to maintain the steep upward trajectory it has seen over the last few years.
Dell, Round Rock, TX, earned $384 million in the third quarter ended Nov. 1, or 28 cents a share, inching higher than street expectations of 27 cents a share and easily surpassing year-ago per-share earnings of 17 cents. Sales for the quarter were $4.8 billion, a 51 percent gain over the comparable period last year.
For the first quarter in its history, Dell sold more than $10 million worth of goods per day through its Web site, www.dell.com. The world’s largest direct seller of computer systems, Dell has raked in $16.8 billion in sales over the last four quarters.
Sales of notebooks and enterprise products like servers and workstations were particularly strong compared with last year, jumping 93 percent and 104 percent, respectively. The upward trajectory of the high-ticket items compensated for desktop sales, which grew 37 percent, slightly slower than the first two quarters of this year.
“Although desktop sales are a little slower, the other two (notebooks and enterprise) not only offset them in the quarter but I think are also the most important areas for them to grow because notebooks and enterprise products carry higher prices and higher margins. So they’re growing at a premium in all the right places,” said Bob Cihra, PC hardware analyst at ING Baring Furman Selz LLC.
But the big PC makers, direct and indirect alike, are now struggling to gain market share among large-scale corporate customers and are turning to the small and medium business segments to find market share headroom. The increasing competition is leading most market-watchers to expect softer sales growth going forward.
“Dell is faced with a slew of issues going forward — customer saturation, a more competitive landscape, and potential hiccup in IT spending as the millennium approaches,” said Piper Jaffray Inc. Analyst Ashok Kumar in a research note.
Small businesses now predominantly buy so-called “white box” equipment, or reseller-built PCs. Across the board, the large computer makers are focusing on improving their small business reach, believing they can steal share from no-name brands more easily than they can wrest it from each other. Additionally, the small business PC market is growing at about 20 percent a year, faster than the overall market.
This month, Dell arch rival Compaq Computer Corp. kicked off a new direct sales strategy using its Web site, www.directplus.compaq.com, and telephone sales. The Houston company is targeting small and medium-sized businesses. Direct PC companies like Dell and Gateway Inc. have been more successful at reaching small businesses than their counterparts using indirect channels.
Looking forward, Furmal Selz’s Cihra expects Dell to grow at a year-over-year clip of about 40 percent plus over the next few quarters.
“I don’t think a company this size can continue to grow in the 50 [percent] to 60 percent plus range forever,” he said.
