Dell jumps after company gains in data-centre mkt

Dell’s shares jumped in late trading after fourth-quarter profit topped estimates and the company made headway in the market for data centres.

Excluding some costs, profit was 53 cents in the quarter, which ended on January 28, Round Rock, Texas-based Dell said. Analysts in a Bloomberg survey had estimated 37 cents on average. The company also forecast annual sales growth that exceeded projections.

Dell, the third-largest personal-computer maker, is counting on a boom in cloud computing to help fuel its next wave of growth. Chief Executive Officer Michael Dell has used acquisitions to offer a broader range of storage, software, security and services, which often carry higher profit margins than PCs. The company expects to keep making deals in a bid to double sales from the data-centre business to $30 billion.

“The epicentre of the company has really shifted to these other areas and away from the PC,” Dell said on a conference call. “If fiscal year ‘11 was about getting operationally fit, then fiscal year ‘12 will be about leveraging this strength.”

Dell shares climbed as much as 8.6 per cent to $15.10 yesterday in extended trading. The stock, up 2.7 per cent this year, had closed at $13.91 on the Nasdaq Stock Market.

Michael Dell, the company’s founder, has spent the past four years turning around the business after growth stalled and it lost its lead in PCs to Hewlett-Packard (HP). Rather than trying to regain its crown in that market, he’s sought to diversify the business.

Bigger rivals
Extending the rally depends on whether Dell can grow as quickly as forecast while preserving profitability, said Shannon Cross, an analyst at Cross Research in Livingston, New Jersey. It also will need to acquire companies without overpaying, she said. Dell’s competitors in the data-centre market, including HP, International Business Machines (IBM), Cisco Systems and Oracle, have deeper pockets than Dell does, she said.

“Part of the challenge with Dell is if they go after something larger that other people want, they’re going to get outbid,” said Cross, who has a “hold” rating on the stock. Dell also will have to grow faster than the corporate-computing industry to dislodge entrenched competitors, she said.