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Dell's Profits an Upside Surprise

By David Needle
November 18, 2010

Dell (NASDAQ: DELL) posted solid earnings for the third quarter today of $822 million or 42 cents a share. That's up from $377 million for the same quarter a year ago, and beat the forecast by analysts surveyed by Thomson Reuters who on average expected Dell to earn 32 cents a share.

Revenue in the quarter rose 19 percent to $15.4 billion, but those results fell short of Wall Street's estimate of $15.76 billion.

The computer company's shares had jumped up 2.4 percent in the regular trading session before the earnings report and after hours trading was briefly halted. After trading resumed late Thursday, Dell's shares rose a total of 7 percent to $14.51.

Dell credited global demand for all its commercial products and services among the factors that led to the uptick in profits. Long recognized for its operations expertise, Dell also credited solid supply-chain management for its operating income results of $1.02 billion for the quarter.

"Our strong results demonstrate that we are listening to customers and delivering what they want. It validates that our strategy to offer choice and efficiency at every level of the IT enterprise computing stack is taking hold, and we are more focused than ever to being a true partner -- not merely a provider -- to our customers," Dell's CEO and founder, Michael Dell, said in a statement. "Dell is growing in the right areas, and I'm very excited about our momentum."

Year to date, Dell said its revenue has grown 21 percent to $45.8 billion. A big chunk of that this quarter came from what Dell calls "large enterprise" sales. Revenue to that sector was $4.3 billion, up 27 percent from the same quarter a year ago. Dell's enterprise solutions and services revenue for the quarter was $1.7 billion, a 25 percent increase.

The news comes at a time when Dell is pitching enterprise customers on new cloud service. The company recently introduced virtual integrated system (VIS) architecture and services it says are designed to help customers transition from legacy systems to open, cloud-like models that dynamically provision application workloads, and unify heterogeneous data center assets into a more efficient common pool of resources. Earlier this month Dell acquired cloud integration vendor Boomi for an undisclosed sum.

Other key sources of revenue and growth for the quarter came from Dell's state and local government business which in the U.S., which was up 5 percent in the quarter. Total "Public" revenue was $4.4 billion, a 20 percent increase that includes revenue from IT services giant Perot Systems acquired earlier in the year.

Dell's sales to small and medium-sized businesses were $3.7 billion, up 24 percent. The company said profit in this sector hit a record high at $391, up 39 percent from last year.

Going forward, Dell said it expects to see continued strength from large corporate accounts as part of an ongoing PC and client refresh cycle, a cycle that is helping other computer companies as well, and "strong growth in enterprise products and services." Dell said it expects fourth quarter revenue to improve from the previous quarter as commercial demand remains stable and consumer demand "remains more muted."

"The company expects full-year revenue to track toward the mid-point of the 14-to-19 percent range set earlier in the year and non-GAAP operating income growth to be between 28 and 32 percent," Dell said in a statement.

David Needle is the West Coast bureau chief at InternetNews.com, the news service of Internet.com, the network for technology professionals.