On The Call: Dell talks profit margins

SAN FRANCISCO — A key surprise in Dell Inc.'s latest quarterly numbers was a better-than-expected gross profit margin, which refers to the amount of money Dell made on each dollar of revenue, before taxes and other expenses are stripped out.

Gross margin is a closely watched figure that measures how well a company is controlling its costs.

Dell had warned in July that it expected a "modest decline" in its second-quarter gross margin because of higher component costs (for things like LCD screens and memory chips), aggressive pricing in the personal-computer industry and weakness in business spending.

Instead, Dell's gross margin improved to 18.7 percent of revenue, up from 17.6 percent of revenue in the first quarter and 17.2 percent in the second quarter of last year. Michael Dell, the company's CEO, discussed the numbers on a conference call with analysts after the market closed Thursday.

Q: What happened with gross margins? And can you talk about the sustainability of things that surprised you there?

A: We are committed to transparency. We, at the time, saw pretty clear pressure after about eight weeks into the quarter. We talked about component costs. We talked about what we're seeing in pricing. We had already, at that point when we talked to you, initiated actions to try and offset that. We said that during the meeting, and I would just say we are pleased with the execution of the teams. We've tightened pricing. We accelerated some of our (cost) actions. We've managed discretionary costs. We worked through managing the mix. I think those are some nice accomplishments to get gross margins back where they should be. Going forward, I would just say, as I said in the comments, that we still see some challenges around component costs and I think pricing is going to continue to be to be challenging, and we're working hard to offset those and improve profitability.