Dell Inc forecast a 14 to 19 percent jump in fiscal 2011 revenue as consumer and corporate spending returns, matching Wall Street's expectations, but investors are focusing on whether the world's No. 3 PC maker can sustain margins.
Investors are likely to quiz executives at Dell's annual financial analysts' conference on Thursday about whether it can shore up profitability after gross margins fell short of expectations in its fiscal first quarter, reflecting a reliance on sales of hardware to U.S. businesses.
The PC manufacturer, which has steadily conceded market share to Hewlett-Packard and Acer Inc <2353.TW> in past years -- has also been squeezed between higher costs for components such as memory, sliding prices for computers amid intense competition.
Shares in the company, once the world's top maker of personal computers, dipped 0.5 percent in after-hours trade to $13.75. It posted a gross margin of 17.6 percent in the quarter ended April 30.
We believe Dell intends to maintain gross margins in the range of 18 percent, though consistency has proved to be a challenge, BMO Capital Markets wrote in a client note.
Dell forecasts that its revenue for the 2011 fiscal year will grow 14 percent to 19 percent from the previous year as more customers buy new computers after holding back during the economic downturn. The outlook confirmed a long-awaited recovery in technology spending.
CEO Michael Dell said on Wednesday that the company -- which has not provided a formal financial outlook since 2006 -- felt more comfortable providing a forecast now that the economy had settled down.
This year we have seen more stability in the business, said Dell, who famously founded the business in 1984 upgrading computers while a student at the University of Texas.
Dell, which went public in 1988, pioneered a then-unqiue model of selling PCs directly to consumers, but has seen its fortunes sag as rivals chomp away at its market share. He vacated the helm of the company but returned to re-take the reins in 2007, spurring hopes of a turnaround.
For now, the company hopes to ride a 2010 corporate upgrade cycle. Dell estimated the percentage of commercial PC users who have updated to Microsoft's Windows 7 as still being in single digits. We are still very early on.
OVERDUE FOR REFRESHMENT...
Many analysts had expected the latest version of Microsoft's core operating system, on which nine-tenths of the world's PCs run, to trigger a new round of corporate and consumer spending to take advantage of its wider range of capabilities.
Dell's outlook compared to the average analyst forecast for revenue to rise around 16 percent to $61.55 billion, according to Thomson Reuters I/B/E/S.
The computer maker also forecast its full-year operating income, excluding special items, would increase by 18 percent to 23 percent from a year earlier.
An overdue client refresh among commercial and public customers is underway and we anticipate it will continue, and we will benefit from a strong cycle, Dell Chief Financial Officer Brian Gladden said in a statement.
Dell's fiscal first quarter results, announced in May, showed strong gains in both profit and sales, although weaker-than-expected margins raised questions about the company's ability to boost profitability.
One key challenge for Dell has been in shifting to higher-margin businesses. Many analysts compare Dell's business model, which is heavily dependent on selling personal computers to U.S. businesses, to the more diverse strategies of Hewlett-Packard and International Business Machines Corp .
The company needs to reduce its reliance on PCs, make its consumer business profitable as well as increase its footprint in the emerging markets to post sustainable revenue and earnings growth, argued International Strategy & Investment Group analyst Abhey Lamba.
(Editing by Edwin Chan; editing by Bernard Orr)