SAN FRANCISCO (AFX) - Dell Inc. on Thursday reported a 18% drop in fiscal first-quarter profit, even as sales rose, as the No. 1 personal-computer maker struggled amid aggressive price competition from Hewlett-Packard Co. and other rivals.
The company also said it would restructure its operations in a move that will cut costs by $3 billion this year, helping send its shares up more than 4% in evening trading after the results were released.
Separately, Dell said it would begin using chips from Advanced Micro Devices Inc. in some of its high-end servers, a major switch for the hardware giant, which has used microprocessors from Intel Corp. exclusively.
Dell said it earned $762 million, or 33 cents a share, down from $934 million, or 37 cents, a year ago. The results were in line with Wall Street expectations and matched a reduced forecast Dell gave on May 8, when the company blamed an aggressive pricing environment for the shortfall.
Revenue rose 6% to $14.2 billion a year ago, also matching estimates. Dell had previously forecast it would earn between 36 cents and 38 cents a share, on revenue in a range of $14.2 billion to $14.6 billion.
The results came amid growing skepticism that the company will be able to use its build-to-order, direct-sale business model to gain market share by cutting prices. Dell is facing increased competition from Hewlett-Packard , especially in the markets for corporate servers and low-cost consumer PCs.
'Dell's price adjustments may not pay off if price elasticity in the low-end segment has weakened to the point of no longer luring consumers,' said Momin Khan, an analyst with the technology research firm Technology Business Research.
While Dell's worldwide PC shipments rose 10% in the first calendar quarter from a year ago, its leading share of the market fell slightly to 16.5% from 16.9% a year ago.
Meanwhile, H-P's share climbed to 14.9% from 13.8%, according to the research firm Gartner Inc. On Tuesday, H-P reported second-quarter earnings and revenue that surpassed company and Wall Street forecasts, and assuaged fears that Dell's pricing issues were symptomatic of the entire PC industry.
Dell Chief Executive Kevin Rollins said in a statement that 'the competitive environment has been more intense than we had planned for or understood.'
Rollins acknowledged that Dell's business efforts had not recently achieved the company's desired results, and that competitors had been able to make headway against the computer giant's market position.
'Over the last year, we tried to achieve both growth and increased levels of profitability,' Rollins said, in a statement, '(This) allowed our competitors to improve their relatively low levels of profitability and accelerate their growth.'
In a statement accompanying the results, Dell said it would no longer give specific quarterly earnings or revenue forecasts but said the company expects its fiscal second-quarter results to be 'similar to' its first-quarter figures.
That would put them below the average estimate of analysts surveyed by Thomson First Call, who expected the company to earn 34 cents a share on revenue of $14.3 billion.
Still, 'a flat quarter-over-quarter is better than feared,' said Shaw Wu, an analyst with American Technology Research who rates Dell shares buy. This story was supplied by MarketWatch. For further information see www.marketwatch.com.
The company also said it would restructure its operations in a move that will cut costs by $3 billion this year, helping send its shares up more than 4% in evening trading after the results were released.
Separately, Dell said it would begin using chips from Advanced Micro Devices Inc. in some of its high-end servers, a major switch for the hardware giant, which has used microprocessors from Intel Corp. exclusively.
Dell said it earned $762 million, or 33 cents a share, down from $934 million, or 37 cents, a year ago. The results were in line with Wall Street expectations and matched a reduced forecast Dell gave on May 8, when the company blamed an aggressive pricing environment for the shortfall.
Revenue rose 6% to $14.2 billion a year ago, also matching estimates. Dell had previously forecast it would earn between 36 cents and 38 cents a share, on revenue in a range of $14.2 billion to $14.6 billion.
The results came amid growing skepticism that the company will be able to use its build-to-order, direct-sale business model to gain market share by cutting prices. Dell is facing increased competition from Hewlett-Packard , especially in the markets for corporate servers and low-cost consumer PCs.
'Dell's price adjustments may not pay off if price elasticity in the low-end segment has weakened to the point of no longer luring consumers,' said Momin Khan, an analyst with the technology research firm Technology Business Research.
While Dell's worldwide PC shipments rose 10% in the first calendar quarter from a year ago, its leading share of the market fell slightly to 16.5% from 16.9% a year ago.
Meanwhile, H-P's share climbed to 14.9% from 13.8%, according to the research firm Gartner Inc. On Tuesday, H-P reported second-quarter earnings and revenue that surpassed company and Wall Street forecasts, and assuaged fears that Dell's pricing issues were symptomatic of the entire PC industry.
Dell Chief Executive Kevin Rollins said in a statement that 'the competitive environment has been more intense than we had planned for or understood.'
Rollins acknowledged that Dell's business efforts had not recently achieved the company's desired results, and that competitors had been able to make headway against the computer giant's market position.
'Over the last year, we tried to achieve both growth and increased levels of profitability,' Rollins said, in a statement, '(This) allowed our competitors to improve their relatively low levels of profitability and accelerate their growth.'
In a statement accompanying the results, Dell said it would no longer give specific quarterly earnings or revenue forecasts but said the company expects its fiscal second-quarter results to be 'similar to' its first-quarter figures.
That would put them below the average estimate of analysts surveyed by Thomson First Call, who expected the company to earn 34 cents a share on revenue of $14.3 billion.
Still, 'a flat quarter-over-quarter is better than feared,' said Shaw Wu, an analyst with American Technology Research who rates Dell shares buy. This story was supplied by MarketWatch. For further information see www.marketwatch.com.