Dell's Turnaround Strategy

By Reuters  |  Print this article Print

Dell raised its profit forecast for the year as its third quarter beat expectations on falling component costs, but revenue did not rise as much as expected by analysts.

Dell's turnaround effort has proceeded in fits and starts over the past few years, frustrating investors. The company has used M&A to try to diversify its portfolio, but it remains heavily reliant on sales of low margin PCs, which still make up half of its sales.

"I believe the third-quarter results are beginning to demonstrate that the strategy we have described to you over the past year is the correct one," Chief Executive Michael Dell on a conference call with analysts.

The company's top line has benefited from the corporate refresh cycle, but Dell has been challenged to translate sales growth into improved profitability.

Dell now expects full-year revenue to track toward the mid-point of the 14 percent to 19 percent growth range set earlier this year. However, revenue in the fiscal third quarter came in below analysts' average forecast.

It expects non-GAAP operating income should grow between 28 and 32 percent, above an earlier forecast for growth of 18 to 23 percent.

Dell beat earnings forecasts by a wide margin. It reported net earnings for the quarter ended Oct. 29 of $822 million, or 42 cents a share, up from $337 million, or 17 cents a share, in the year-ago period.

Excluding items, Dell earned 45 cents a share, better than the average analyst estimate of 32 cents a share, according to Thomson Reuters I/B/E/S.

But revenue rose 19 percent to $15.4 billion, below Wall Street's estimate of $15.76 billion.

At it seeks new growth markets, Dell is pushing aggressively into mobile with smartphones and tablets. But that effort has yet to gain traction. The company said on Wednesday that Ron Garriques, the head of its mobile business, is leaving and his group will be integrated into the rest of the company.

The shares of Round Rock, Texas-based Dell gained 2.4 percent in the regular session. (Editing by Edwin Chan, Gary Hill and Andre Grenon)