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Dell Cuts Profits to Boost Sales

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PC maker falls short of estimates.

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Dell (DELL) says price cuts boosted second quarter sales, but cut profits 17%.

Dell's profit dropped to $616 million, or $0.31 per share, from $746 million, or $0.32, for the same period a year ago. Analysts expected the company to earn $0.36 per share.

Sales climbed 11% to $16.4 billion, beating Wall Street estimates of $15.9 billion. However, Dell cut personal computer prices in the second quarter in an effort to gain market share.

"We are positioning Dell to win in a new era of global IT spending," Michael Dell, the company's chairman and CEO, said in a prepared statement. "We have our most competitive product portfolio ever - whether for digital nomads or hyper-scaled data centers. Our growth at a multiple of the industry across all major product categories for the second consecutive quarter affirms we are on track with our 5 key business priorities - notebooks, consumer, enterprise, SMB and emerging countries."

Price cuts are good news for prospective PC buyers, but bad news for short-term investors. Dell's stock closed down 1.64% Thursday at $25.21. The 52-week range is $18.13 to $30.77. Prior to Thursday's close, the stock had gained about 2.9% this year.

Rival Hewlett-Packard (HPQ) can offset sluggish PC sales and price cuts with solid results from printers or high-end servers. The company has beaten analysts' earning estimates every quarter since Mark Hurd became CEO in April 2005.

Analysts in the United States have criticized Dell for relying too long on Internet sales of PCs, but the familiar tactic appears to work well in India.

Sales of personal computers in India are growing 3 times faster than in the United States. Dell has more than doubled its share of the Indian market in the last 3 years, and that helped drive second-quarter sales.

Corporate sales are increasing in India. Many companies are bypassing resellers and purchasing equipment directly from the manufacturer via the Internet or phone.

But the economic slump at home has slowed Dell's corporate sales.

Hewlett-Packard increased its market share in India to 18.4% in the first quarter from 13.1% in the same period 3 years ago. Dell's share of PC sales in India increased to 7.6% from 3.1%, IDC reported.

Dell also reported increased sales in Brazil, China and Russia. But sales growth in Europe, Asia, Africa and the Middle East has slowed.
No positions in stocks mentioned.
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