Dell's Q3 profits rise on strong enterprise demand

Dell reports a 144 percent rise in net profits during fiscal Q3 to $822 million.

Dell on Thursday reported a growth in profits and revenue for the third quarter of fiscal 2011, driven by strong demand for the company's commercial products.

The company reported net profits of $822 million for the quarter that ended on Oct. 29, up from $337 million reported in the same quarter last year. Earnings per share were $0.42, beating estimates of $0.32 from analysts polled by Thomson Reuters.

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Revenue for the third quarter was $15.4 billion, growing 19 percent from the year-ago quarter. Analysts expected revenue of $15.8 billion.

"Dell is growing in the right areas, and I'm very excited about our momentum," said CEO Michael Dell in a statement.

Over the past few years, Dell has been paying more attention to the enterprise market as it tries to move away from its reputation of being a consumer PC company.

Revenue for the commercial business for the quarter was $12.4 billion, up 24 percent year over year. Within the business, revenue for the Large Enterprise unit was $4.3 billion, up 27 percent from a year ago, while revenue for the Small and Medium Business division was $3.7 billion, up 24 percent.

Revenue in the commercial business was driven by strong demand for servers, with server revenue growing by 16 percent year over year, said Brian Gladden, Dell's chief financial officer, during a conference call after the results were announced.

A broad trend of replacing aging PCs also helped drive up commercial revenue, CEO Dell said during the call.

The commercial client refresh will remain healthy going into the fourth quarter, Dell said. Companies are looking to adopt Microsoft's latest OS, Windows 7, and in most cases they are buying new PCs to do so. Companies also want to implement desktop virtualization and upgrade PCs to Microsoft's Office 2010 and Exchange 2010 software.

The refresh cycle was strong even though some enterprises are waiting for Intel's next-generation Sandy Bridge microprocessor architecture before they upgrade their PCs, Dell said. Intel will ship its next-generation Core microprocessors based on Sandy Bridge early next year.

During the quarter, Dell also announced a range of new products including servers, networking and storage equipment for SMBs. Revenue from EqualLogic SMB products stood out, growing by about 84 percent during the quarter, Gladden said.

Demand for consumer PCs was "muted," the company said. Revenue for the Consumer division was $3 billion, growing only 4 percent year over year.

The demand for consumer products is shaky but could rise during the fourth quarter, CEO Dell said. Revenue from consumer products may make up a larger proportion of revenue during the fourth quarter.

However, declining component costs could affect the pricing of consumer products and dampen fourth-quarter profit margins, Gladden said.

In the overall business, server revenue went up 20 percent on a 4 percent growth in unit shipments. Revenue for mobile products, including laptops, grew 16 percent, on 10 percent shipment growth. Desktop revenue went up 21 percent on a 13 percent rise in unit shipments.

Developing countries are making up a larger chunk of the company's revenue, Gladden said. Revenue from the so-called "BRIC" countries -- Brazil, Russia, India and China -- grew 30 percent year over year and now makes up 13 percent of the company's total revenue.

The ongoing client refresh and growing demand for enterprise products and services will remain strong in the fourth quarter, the company said. The company is expecting revenue to be in line with or slightly up from the third quarter, the company said.

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