Dell Profit Falls 5%, and So Does Its Stock

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Tech giant Dell (DELL) reported a 5% decrease in quarterly earnings Thursday even as sales grew 11%, slightly topping Wall Street expectations. The third largest PC company benefited from a healthy holiday shopping season and said it sees signs of a robust return of business spending. But the results failed to impress investors, who sent Dell shares down over 5% in after-hours trading.Dell's lackluster results contrast with the very strong numbers recently posted by (IBM) and Hewlett Packard (HPQ), Dell's larger rivals.

Competitive Market

"Dell continues to grow slower than its peers, meaning further market share losses," Shaw Wu, an analyst at Kaufman Bros, told Bloomberg. "It remains to be seen if Dell can win back customers lost to competitors."

Like its larger rivals, Dell is moving away from a strictly hardware-based model toward business services. "Our solutions portfolio is expanding rapidly, driven by our strong capabilities, ongoing innovation and smart acquisitions," CEO Michael Dell said in a statement.

Dell said that consumer demand during the holiday season was strong, sending its PC sales up 29%

"We achieved solid revenue growth in every part of our business," Dell CFO Brian Gladden said in a statement. "Our commercial units are well poised for profitable growth as demand continues to return because we're meeting customer requirements for higher-value, higher-margin servers, storage systems and services."

"Cautiously Optimistic"

Gladden said Dell generated $3.9 billion of cash flow last year, "more than twice the amount in the prior year."

In its corporate outlook, Dell said it sees "demand in the important commercial business continuing to return during the fourth quarter and is cautiously optimistic that this trend will continue into fiscal-year 2011."

Like HP, Dell says it anticipates a major customer "refresh" as consumers and company's upgrade to Microsoft's much-ballyhooed new operating system, Windows 7.

Dell said quarterly profit fell to $334 million, or 17 cents per share, from $351 million, or 18 cents per share, one year earlier. Excluding the costs of its $3.9 billion acquisition of Perot Systems, Dell said it earned 28 cents per share, just topping analysts expectations of 27 cents. Revenue rose 11% to $13.9 billion.
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