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Dell shrugs off HP threat

Feels great to be number two

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ComputerWire: IT Industry Intelligence

Dell Computer Corp shrugged off the threat of the new HP yesterday as it unveiled its first quarter results.

The Round Rock, Texas-based company trumpeted a better than expected performance for its first quarter, and said it expected to deliver year on year growth in both sales and earnings per share in its second quarter.

However, analysts were keen to see how the company would deal with being number two in the PC market worldwide, following the merger of HP and Compaq.

Dell's sales for the period ending May 3 were $8.07bn, a 0.5% rise on the year, and better than the $7.9bn it had predicted. Operating income was up 0.4% year on year to $590m, while net income, at $457m, was down 1.3% year on year. Earnings per share were $0.17, compared to the $0.16 the company had predicted.

The company expects to see growth continue into the second quarter, although it expects industry wide units shipments to slip. Kevin Rollins, president and chief operating officer, said he expected revenue to be up 8% year on year to $8.2bn, with earnings per share of around $0.18. Rollins added that the second quarter would see its investment in storage starting to pay off in terms of its financials.

In a conference call with analysts the company, which before the HP/Compaq merger was the world's biggest PC vendor, was asked "how it felt to be number two."

Rollins said "it felt great" before pointing out the vendor was still number one in the US. He said the company was more focused on being number one in profitability than revenues or shipments alone. He said the company was confident it could regain the number one spot in revenues, but the key issue was to remain number one in profitability.

He added that the company had yet to see any aggressive pricing activity from its competition. He said that if the competition, including the new HP, opted to focus on profitability, rather than chasing market share alone, this would be good for Dell, as it would give the firm more room to exploit its supply chain advantages.

However, the firm was restrained when talking about the prospects for the industry as a whole. Rollins said the company could not predict whether small and medium businesses or corporates would lead the industry out of its down turn. He added that right now global customers were "the softest of the bunch."

He added that the company was still confident that the need to upgrade creaking installed bases would eventually prompt customers to buy new PCs. At the same time, he said, CIOs and CFOs were holding on to cash until they see their own profits improve. He was confident there was a "lot of pent-up demand" waiting to be unleashed. But, he said, some companies' budgets were set for the year and upgrades would not be signed off till new budgets were set.

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