Dell Posts 46 Percent Gain In Quarterly Earnings

Filed at 5:13 p.m. ET

DALLAS (AP) Dell Inc. said Thursday that preliminary second-quarter earnings jumped 46 percent on stronger sales of enterprise products and services, improved average selling prices and favorable component costs.

The computer maker said it earned $733 million, or 32 cents per share, in the three months ended Aug. 3, compared with $502 million, or 22 cents per share, a year ago. Sales rose 4 percent to $14.8 billion.

The results beat the prediction of analysts polled by Thomson Financial, who expected earnings of 30 cents per share on sales of $14.63 billion.

The report comes as Round Rock-based Dell emerges from a yearlong internal investigation into accounting misconduct.

Dell said it will have to reduce more than four years worth of earnings by up to $150 million for misleading auditors and manipulating results to meet performance.

While our results demonstrate weve made progress against our goals, we are still in the early stages of transforming our companys structure, costs and operations, Chairman and CEO Michael Dell said in a statement.

The earnings were dragged down a nickel per share, however, by a $102 million charge for compensation expenses related to payments for expired stock options and $59 million in costs related to the internal probe.

The results did not include year-ago figures and remain preliminary until Dell resolves an ongoing Securities and Exchange Commission investigation into the accounting issues.

Dell still faces shareholder lawsuits, and federal prosecutors in New York have also subpoenaed documents on the companys financial reporting since 2002.

The positive earnings come after a rough year for Dell.

It began last August with a massive notebook battery recall and continued with the accounting probe.

Then came a shake up of the companys top executive ranks, the loss of its No. 1 position in the PC market to rival Hewlett-Packard Co., thousands of layoffs and, more recently, production delays for its new line of colorful laptops.

Dell acknowledged a higher-than-normal product backlog due to unexpectedly high demand for new Inspiron and XPS color notebooks, as well as supply constraints for certain flat-panel displays.

But in Thursdays earnings, the company said it was focused on opportunities that would set the stage for a more sustainable balance of liquidity, profitability and growth. Dell didnt hold the usual conference call with reporters and analysts afterward to explain these opportunities in more detail.

The direct-sales model, in which consumers and businesses buy Dell products over the Internet or the telephone at a discount, helped bring the company to the forefront of the PC business.

But Dells dominance slipped, largely to competitors who offer systems at retail.

To turn things around, Dell has begun dabbling with retail in partnerships with Wal-Mart Stores Inc. in the United States, as well as retailers in the United Kingdom and Japan.

Dell has also launched the new Vostro brand of computers targeting small business, and it has expanded into the lucrative business of selling services to go with the hardware.

Dell, which has 90,400 temporary and full-time employees worldwide, said it would stop its share buyback program until it can file its backlog of SEC reports. Thats expected to happen sometime in November.

Shares rose 60 cents, or 2.2 percent, to close at $28.46, then gained another 10 cents in after-hours trading.

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