Dell shares jump after strong computer demand fuels rosy profit forecast

Boxes of Dell laptops at a store in Washington. Dell projected that profit, excluding some items, will be US$6.95 to US$7.40 a share in the current fiscal year. PHOTO: AGENCE FRANCE-PRESSE
Boxes of Dell laptops at a store in Washington. Dell projected that profit, excluding some items, will be US$6.95 to US$7.40 a share in the current fiscal year. PHOTO: AGENCE FRANCE-PRESSE

SAN FRANCISCO • Dell Technologies raised its annual profit forecast after reporting quarterly sales and earnings that topped Wall Street estimates on strong corporate demand for computers and software. Shares gained in extended trading.

Profit, excluding some items, will be US$6.95 to US$7.40 a share in the current fiscal year, executives of the Round Rock, Texas-based company said on Thursday during a conference call.

In February, Dell projected US$6.05 to US$6.70 a share for fiscal 2020. Analysts, on average, estimated US$6.42 a share, according to data compiled by Bloomberg.

Chief executive Michael Dell has diversified his technology empire to make it a one-stop shop for large companies upgrading their hardware and software.

That broad product line-up helped the company in the most recent period, when growth in corporate sales of desktops and laptops overcame weakness in Dell's server and storage business.

Competitors Hewlett Packard Enterprise and NetApp both reported disappointing sales because of falling demand for data centre hardware.

"We've tried to position the company to be successful in any economic environment," said Mr Tom Sweet, Dell's chief financial officer.

"While we think long technology-spending cycles hold up, what we have seen this year is a softening of demand in the server space."

POSITIONING

We've tried to position the company to be successful in any economic environment. While we think long technology-spending cycles hold up, what we have seen this year is a softening of demand in the server space.

DELL CHIEF FINANCIAL OFFICER TOM SWEET

Dell's reported revenue gained 2 per cent to US$23.4 billion (S$32.5 billion) in the fiscal second quarter.

Earnings, excluding some items, were US$2.15 a share in the period ended Aug 2, the company said in a statement. Analysts, on average, projected profit of US$1.50 a share on sales of US$23.3 billion.

Shares jumped about 9 per cent in extended trading after closing at US$46.77 in New York. Dell's stock has declined 4.3 per cent this year.

Companies have been upgrading their personal computers to get Microsoft's Windows 10 software, bolstering demand for Dell's PCs.

The company's PC division grew 5.8 per cent in the quarter, with commercial sales rising 12 per cent.

Revenue from Dell's data centre hardware fell 6.6 per cent to US$8.6 billion.

While sales of storage hardware were little changed from a year earlier, server and networking gear revenue declined 12 per cent - a turnaround from last year, when the company saw unprecedented demand for the products.

Dell executives said on the call that they expected IT spending to be "soft" throughout the rest of the fiscal year, particularly in China.

The company narrowed its annual revenue projection to between US$92.7 billion and US$94.2 billion, from the February forecast of US$93 billion to US$96 billion.

"There is more macro uncertainty, whether it's the trade environment, the Brexit environment, GDP (gross domestic product) growth in Europe, yield curves inverting," Mr Sweet said. "As a result of that, I think you do have some customers more cautious on capital spending."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on August 31, 2019, with the headline 'Dell shares jump after strong computer demand fuels rosy profit forecast'. Print Edition | Subscribe