Dell (DELL)

After nearly two years of decline, Dell's earnings are finally on the rise again, with first quarter earnings of 2008 higher than Wall Street estimates. Driving this profit climb include the fact that server sales rose 21% and laptop shipments 43% since Michael Dell took over the reigns as CEO. Daring and costly initiatives such as beefing up product design and innovation techniques, along with a competitive international agenda have bore fruit: Sales in places like Brazil, India, and China have seen an increase of 58% in sales.

The company reported fiscal first quarter earnings of 38 cents a share and revenue of $16 billion against consensus forecasts of 34 cents and $15.7 billion.

Dell is expanding into the non-PC segment, which is showing both higher growth rates and higher margins than the PC market. The company is increasing its offerings of servers, peripherals, services, etc., in an attempt to capture share in this budding market segment.

Two exciting products that prove what Dell can do:

• The Dell Crystal Monitor: A 22-inch widescreen flat panel display made of ultra-clear tempered glass, with a 1680 x 1050 high-definition resolution and a 98% color gamut to reveal more shades and tones. It won the highest design honor at the Consumer Electronics Show, the CES Best of Innovations 2008. See it here.
• The XPS One: An all-in-one computer similar to the iMac, but Windows-based. It features an elegant display with built-in 2-megapixel webcam, integrated Hi-Def sound system, wireless keyboard and mouse, a smoked glass display base, a finished back, and a clean one-cord wire consolidation. See it here.

Dell is "a work in progress" and pointed out, "This is not a short-term fix and we are not in a short-term game."

The Vostro line of notebooks is not supposed to compete with the MacBook Air, but is a gutsy alternative for small businesses that want power and speed in a little package. A review at Laptop Magazine that awarded the Dell XPS M1330 its Editors' Choice designation and said it's "a remarkable notebook for a very reasonable price."

The review concludes: "So let's review: top-notch screen, keyboard, performance, design, portability, and features, all for under $2,000. Sure, it's not as thin as the MacBook Air or ThinkPad X300, but the XPS M1330 has more features than the former and a much lower price than the latter. This is the ultimate sweet-spot notebook for consumers."

Moreover, It spent $152 million on research and development last quarter, which is 7% higher than it was a year ago, so they're working on something.

Even without a technology breakthrough, however, the marginal changes taking place at Dell are good enough to keep earnings growing

Dell’s total operating expenses were $15.2 billion for the quarter ended Feb. 1, while total revenue clocked in at almost $16 billion, leaving less than $800 million in operating income. The company wants to reduce costs by $3 billion by 2011. "I believe we have begun the journey to transform the company," Dell said.Not only is he believing, he’s betting on it. At the same meeting, Chief Financial Officer Donald Carty said the company plans to repurchase at least $1 billion in company stock this quarter. The company bought back $400 million of its stock last quarter. Carty also said the company will draw from capital markets for debt financing.

Recently the Dell server business has been surging in the US enterprise market. Although large companies say it would be easy to switch from Dell to another vendor they are not because they give Dell top marks in their ability to deliver. Other firms like HP and IBM score higher in technology and other metrics but Dell is gaining share.

There are plenty of moving pieces at Dell but they enjoy strength in their core market while others may be distracted. Michael Dell is serious about getting the company back on track. It is however a recover measured in years not months.

Dell’s direct-to-customer model remains the company’s strongest advantage in the computer hardware market. This model minimizes operating costs while maximizing operating cash flow, providing the company with a superior business model with generally high margins.

Dell’s direct-to-customer model remains the company’s strongest advantage in the computer hardware market. This model minimizes operating costs while maximizing operating cash flow, providing the company with a superior business model with generally high margins.

The introduction of Microsoft’s new Windows Vista operating system should trigger an upgrade cycle in Dell’s higher-margin commercial segment. As companies upgrade or replace their computer systems to meet Vista’s compatibility requirements, Dell stands to benefit from increased demand.