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Friday, August 29, 2008

Dell May Ring Closing Bell On Tech Run

laptopsAn otherwise dismal earnings season is about to get a happy ending.

Personal-computer maker Dell unveils fiscal-second-quarter results after Thursday's closing bell. Every shake of the Magic 8-Ball points to a good report for the company, the world's second-biggest PC maker by sales after Hewlett-Packard.

Research firm Gartner said Dell's PC sales rose nearly 22% in the calendar second quarter from a year earlier, outpacing industry growth of 16%. Retail sales in Dell's fiscal quarter, which started a month later, in May, got the full benefit of tax-rebate checks sent to consumers beginning that month. The dollar was still weak for most of the quarter, helping overseas revenue. Aggressive belt-tightening, including job cuts, likely helped margins.

After suffering a three-year slump, Dell's shares have jumped 41% since mid-April. Even as other corporate profits have ground to a halt, the tech sector generally has been a source of strength for investors, boosted by seemingly unquenchable overseas demand. While earnings in the S&P 500 slumped again in the second quarter, tech earnings rose nearly 15%.

The outlook might not be as encouraging, for Dell or for tech. The dollar has strengthened. The global economy is slowing, hitting one of tech's strongest areas for growth. In the U.S., retail sales -- an important growth source for Dell in particular -- could suffer if consumer spending weakens as expected. PC-sales growth has been largely driven by cheaper prices; if Dell can't keep costs in line, margins could suffer.

Businesses' tech spending seems to be holding up. But it has slowed in every downturn since World War II, and this time will likely be no different.

Dell's earnings report could be tech's last hurrah for a while.

By: Mark Gongloff
Wall Street Journal; August 28, 2008