Dell Shares Soar More than 9 Percent

Posted 23 November 2006 @ 02:21 pm EET     Print     Reprint     E-Mail     Comments

DALLAS (AP) - Shares of Dell Inc. soared more than 9 percent Wednesday after the company beat Wall Street estimates in a delayed, preliminary third-quarter report that could change depending on the results of an ongoing government investigation into the company's accounting.

Shares rose $2.31, or 9.31 percent, to close Wednesday at $27.13 on the Nasdaq Stock Market. Its shares have traded in a 52-week range of $18.95 to $33.22.

Dell, which posted the results after markets closed Tuesday, earned $677 million, or 30 cents per share, in the three months ended Nov. 3, up from $606 million, or 25 cents per share, in the same quarter a year ago. Revenue was $14.4 billion.

Analysts, on average, had been looking for third-quarter earnings of 24 cents per share on sales of $14.44 billion, according to a survey by Thomson Financial.

The results were driven by a 17 percent jump in laptop sales from a year ago and a more diverse product line that included the rollout of processors from chip-maker Advanced Micro Devices Inc.

Though sales of Dell PCs actually fell 5 percent in the same period, overall sales of laptops and desktops in that span accounted for $8.6 billion, or 59 percent, of Dell's revenue, the company said.

It was just the good news investors had been waiting for after more than a year of disappointing earnings, struggles with competitors and the recall of more than 4 million faulty laptop batteries since August.

In a report Wednesday, Bear Stearns analyst Andrew Neff upgraded Dell's stock from "peer perform" to "outperform," saying the company's solid earnings were a sign that a long-discussed turnaround effort was starting to show some results.

"In our view, Dell's problems were largely self-inflicted resulting from growing pains while not adapting to the next phase of growth," he wrote. "Moreover, more recently, Dell was chasing revenues for the sake of revenues, moving away from its mantra of optimizing growth, profitability and liquidity. Following Dell's results, we sense a heightened focus on striking a better balance of profitability and revenues."

Richard Doherty, research director at the Envisioneering Group, echoed those comments, saying he believed Dell has bottomed out and finally positioned to improve after more than a year of disappointing earnings.

"They've cleared away some uncertainty," he said. "I think they bit the bullet full down into the lead, and I think Wall Street has rewarded that."

Beyond the holidays, early 2007 should bode well for Dell and other computer makers once Vista, the oft-delayed successor to Microsoft Corp.'s ubiquitous Windows operating system, finally makes its way into consumer PCs, Doherty said.

Another boost for Dell could be the addition of high-capacity Blu-ray disc drives, which the company has said it plans to offer in desktop PCs soon, he added.

In a break from its normal practice, Dell did not provide year ago results in its report while stressing the preliminary nature of the earnings.

Dell also warned the results could change due to a Securities and Exchange Commission probe that has grown since it was first announced in August. Dell also included warnings about the uncertain outcome of the investigations that could show "a material weakness in the company's internal controls over financial reporting."

Tuesday's report was filed six days later than expected because of the "level of complexity the company is facing in the preparation of its preliminary results." But the company said the delay was unrelated to the investigations.