Dell's Allegiance to Business Sales Begins to Pay Off

Dell Inc. announced today its quarterly profit almost tripled due to strong sales to businesses and lower component costs, as the computer company continues to make huge progress in the market.

 Strong results were affected by lower cost prices and higher profit margins on server sales, but also a greater push into new business lines, the company stated.

Stacy Delo, at Dell reported,- that shares of the personal computer maker jumped 5 percent during after-hours trading after the results were announced Tuesday.

In a conference call, Dell Chief Financial Officer Brian Gladden-, said the company placed more of an emphasis on higher-end products during the latest quarter and pruned some less-profitable ones from its catalog. Those changes, along with improvements to the company's supply chain, "we believe are clearly sustainable," Gladden said.

Part of Dell’s (News - Alert) increased success has been its involvement in higher-margin businesses like storage systems and security. Dell said he will continue to shift to such products, adding that "profit growth is more important than unit growth."

For the quarter ending Jan. 28, Dell's earnings jumped to $927 million, or 48 cents a share, up from $334 million, or 17 cents a share, in the same period a year earlier. The profit gains far outweighed the PC maker's revenue, which increased 5 percent to $15.7 billion from a year earlier.

Over the length of the quarter, Dell said it greatly benefited from the decreased costs of components such as LCD screens and memory chips. Sales to corporate customers have also increased- yielding significant gains, which are currently Dell's biggest clients, and continue to buy new PCs to replace aging desktops and laptops.

Dell added that the operating margin for the quarter was 7.3 percent, up from 3.4 percent from the period a year prior, and 6.7 percent in the previous quarter. In November, Dell reported that the margin increase was due largely to lower component costs and likely weren't sustainable over the long term.

The margin increase is "clearly a step in the right direction for the company," said Abhey Lamba, an analyst at ISI (News - Alert) Group. "If they saw this coming they should have guided to it," Lamba added.

Driven by sales within the corporate arena, Dell's PC shipments growth exceeded that of the overall PC market, according to data from research firm Gartner (News - Alert). However, major competitors Hewlett-Packard Co. and Acer (News - Alert) Inc., which mainly sell to private consumers, each experienced slight declines in PC sales growth.

"For a change, Dell's overexposure to corporate [customers] is working to their advantage this quarter," said Rob Cihra, an analyst at Caris & Co.