Dell Sees Continuing Improvement in Demand Environment, Delivers Solid Progress Against Strategic Agenda
-- Revenue Up Sequentially, Company Expects Stronger Second Half
-- Shipments to Large Enterprise, SMB Customers Up Sequentially
-- Cash Flow From Operations Strong at $801 Million; $3.4 Billion Over the
Past Four Quarters
ROUND ROCK, Texas--(BUSINESS WIRE)-- Sequential increases in demand and revenue from business customers highlighted Dell's fiscal third-quarter 2010, reflecting the company's strengthening enterprise-solutions capabilities, while overall operating expenses continued to decline as a result of strategic cost initiatives.
-- Shipments were flat sequentially and down 5 percent from a year ago,
though the Large Enterprise and Small and Medium Business segments had
sequential improvements in shipments, revenue and operating income.
-- Total revenue was $12.9 billion, a 1-percent sequential improvement and
down 15 percent from a year ago. Q3 year-over-year comparisons across
the business continued to improve from recent quarters.
-- Gross marginwas 17.3 percent of revenue including expenses of $102
million for organizational effectiveness (OE) actions and $27 million
for amortization of intangibles. The combined cost of $129 million
represented 1 percent of revenue.
-- Earnings per share were 17 cents, including pre-tax expenses of $123
million (5 cents per share) for the OE actions and $40 million (1 cent
per share) for amortization of intangibles.
-- Cash flow from operations was again strong, totaling $801 million. Over
the past four quarters, Dell has generated $3.4 billion of operating
cash flow, up more than 40 percent from the previous four quarters.
-- Operating Expenseswere 12.8 percent of revenue, or $1.7 billion, 10
percent lower than last year's third quarter.
Third Quarter Results: (In millions) FY10 FY09 Change Revenue $ 12,896 $ 15,162 (15%) Operating Income $ 577 $ 1,015 (43%) Net Income $ 337 $ 727 (54%) EPS $ 0.17 $ 0.37 (54%) All growth rates are year-over-year.
Strategic Progress:
-- Dell completed the acquisition of Perot Systems in early November,
giving the company an advantage in delivering expanded, practical
solutions that meet real customer needs and help them reduce IT costs.
Dell's Q3 enhanced services revenue, not including results from Perot
Systems, increased 2 percent sequentially. Integration of Perot Systems
into the new Dell Services business is under way, with consolidated
reporting to begin in the fourth quarter.
-- Dell's enterprise-systems business also grew sequentially, with server
and storage revenue up a combined 5 percent and particular strength in
year-over-year EqualLogic sales. Dell's strategy to design and deliver
practical, standards-based solutions for the data center and the cloud
is resonating with customers looking to reduce complexity, improve
efficiency and lower costs.
-- Dell has reduced total operating expenses by $1.6 billion and made
further progress against lowering its cost of goods sold since
committing to a $4 billion in cost reductions by the end of FY2011 or
sooner.
-- Combined sales in China, India, Brazil and Russia were up 18 percent
sequentially and 5 percent over last year. In China, Dell's
second-largest country in terms of revenue, sales increased 20 percent
sequentially and 8 percent year-over-year.
Business Units:
-- Large Enterpriserevenue was $3.4 billion,up 4 percent from the second
quarter, though down 23 percent from a year ago. Sequential shipments
improved 1 percent. Operating income for the quarter was $174 million.
Dell expanded networking partnerships with Brocade and Juniper,
introduced new PowerEdge 11g servers further optimized for
virtualization, and expanded the line of PowerVault storage systems in
the quarter.
-- Public revenue was $3.7 billion, down 3 percent sequentially and 7
percent from a year ago. Operating income was $352 million. Shipments
were off 12 percent sequentially, following typical seasonality in the
U.S. public sector after peak purchasing periods for education and state
customers.
-- Small and Medium Business revenue was $3 billion, up 5 percent
sequentially and down 19 percent year over year. Shipments were up 9
percent sequentially and operating income was $282 million, 15 percent
higher than in Q2 as a result of steadily improving demand in both the
Americas and Asia-Pacific and better performance in EMEA during the
second half of the period.
-- Consumer revenue was $2.8 billion, essentially flat from the second
quarter and down 10 percent from a year ago. Shipments increased by 4
percent sequentially and 17 percent over last year. Dell's Consumer
business generated quarterly operating income of $10 million, and its
year-to-date operating income exceeds 1 percent of revenue, consistent
with expectations.
Quotes:
Michael Dell, chairman of the board and chief executive officer: "We are seeing improvement in overall underlying IT demand that is continuing into the fourth quarter. The same is true with momentum in Dell's business, specifically in our Large Enterprise and SMB segments. The launch of Windows 7 is being very well received by SMBs and consumers, and we'll see the benefits of that more fully in our fiscal Q4."
Brian Gladden, chief financial officer: "Consistently generating strong cash from operations allows us to expand our own capabilities and acquire new ones. Those investments will mostly be in higher-margin enterprise solutions, like our purchase of Perot Systems. Adding Perot best positions us to provide streamlined solutions that help customers get the most from their IT budgets."
Company Outlook:
-- For the fourth quarter, Dell expects seasonal demand improvement in its
Consumer business, while demand in Public is typically lower during the
quarter. The company expects fouth quarter revenue to improve over the
third quarter.
-- The company is seeing improvement in underlying sequential trends in
several areas, including a significant portion of its commercial
business. Recent technology introductions, indications of improving
economic activity and the prospect of a lift in associated IT spending
position the company well, particularly as commercial customers upgrade
their technology beginning in 2010.
About Dell
Dell Inc. (NASDAQ: DELL) helps customers succeed by understanding their issues and needs and delivering innovative, high-value IT solutions. For more information, visit www.dell.com. To hear a replay of the third-quarter analyst call with Michael Dell, chairman and CEO, and Brian Gladden, CFO, go to www.dell.com/investors. To communicate directly with Dell, go to www.dell.com/dellshares.
Special Note:
Statements in this press release that relate to future results and events (including statements about our future financial and operating performance and anticipated customer demand) are forward-looking statements based on Dell's current expectations. Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements because of a number of risks, uncertainties and other factors, including: weakening global economic conditions and instability in financial markets; our ability to reestablish a cost advantage over our competitors; our ability to generate substantial non-U.S. net revenue; our ability to accurately predict product, customer and geographic sales mix and seasonal sales trends; information technology and manufacturing infrastructure failures and breaches in data security; our ability to effectively manage periodic product transitions; disruptions in component or product availability; our reliance on vendors for quality product components, including reliance on several single-source or limited-source suppliers; our ability to access the capital markets; risks relating to our internal controls; potential unfavorable outcomes of tax matters and legal proceedings, including the continuing SEC investigation into certain accounting and financial reporting matters; our acquisition of other companies; our ability to properly manage the distribution of our products and services; the success of our cost-cutting measures; effective hedging of our exposure to fluctuations in foreign currency exchange rates and interest rates; counterparty default risks; obtaining licenses to intellectual property developed by others on commercially reasonable and competitive terms; our ability to attract, retain and motivate key personnel; loss of government contracts; expiration of tax holidays or favorable tax rate structures; changing environmental laws; and the effect of armed hostilities, terrorism, natural disasters and public health issues. For a discussion of those and other factors affecting our business and prospects, see Dell's periodic filings with the Securities and Exchange Commission. We assume no obligation to update forward-looking statements.
Consolidated statements of income, financial position and cash flows follow.
Dell, Dell EqualLogic, PowerEdge and PowerVault are trademarks of Dell Inc.
Dell disclaims any proprietary interest in the marks and names of others.
DELL INC.
Condensed Consolidated Statement of Income and Related Financial Highlights
(in millions, except per share data and percentages)
(unaudited)
Three Months Ended % Growth Rates
October 30, July 31, October 31,
2009 2009 2008 Sequential Yr. to Yr.
Net revenue
Products $ 10,746 $ 10,623 $ 12,970 1% (17%)
Services, including 2,150 2,141 2,192 0% (2%)
software related
Net revenue 12,896 12,764 15,162 1% (15%)
Cost of net revenue
Products 9,269 8,978 10,958 3% (15%)
Services, including 1,394 1,395 1,351 (0%) 3%
software related
Total cost of net 10,663 10,373 12,309 3% (13%)
revenue
Gross margin 2,233 2,391 2,853 (7%) (22%)
Selling, general and 1,501 1,571 1,671 (4%) (10%)
administrative
Research,
development and 155 149 167 4% (7%)
engineering
Total operating 1,656 1,720 1,838 (4%) (10%)
expenses
Operating income 577 671 1,015 (14%) (43%)
Investment and other
income (expense), (63) (42) (6) (51%) NM
net
Income before income 514 629 1,009 (18%) (49%)
taxes
Income tax provision 177 157 282 13% (37%)
Net income $ 337 $ 472 $ 727 (29%) (54%)
Earnings per common
share:
Basic $ 0.17 $ 0.24 $ 0.37 (29%) (54%)
Diluted $ 0.17 $ 0.24 $ 0.37 (29%) (54%)
Weighted average
shares outstanding:
Basic 1,956 1,955 1,953 0% 0%
Diluted 1,966 1,960 1,957 0% 0%
Percentage of Total
Net Revenue:
Gross margin 17.3% 18.7% 18.8%
Selling, general and 11.6% 12.3% 11.0%
administrative
Research and 1.2% 1.2% 1.1%
development
Operating expenses 12.8% 13.5% 12.1%
Operating income 4.5% 5.2% 6.7%
Income before income 4.0% 4.9% 6.7%
taxes
Net income 2.6% 3.7% 4.8%
Income tax rate 34.5% 25.0% 28.0%
Net Revenue by
Product Category:
Mobility $ 4,191 $ 3,891 $ 4,861 8% (14%)
Desktop PCs 3,020 3,319 4,091 (9%) (26%)
Software and 2,394 2,382 2,585 1% (7%)
Peripherals
Servers and 1,539 1,403 1,630 10% (6%)
Networking
Enhanced Services 1,244 1,218 1,365 2% (9%)
Storage 508 551 630 (8%) (19%)
Consolidated net $ 12,896 $ 12,764 $ 15,162 1% (15%)
revenue
Percentage of Total
Net Revenue:
Mobility 32% 30% 32%
Desktop PCs 23% 26% 27%
Software and 19% 19% 17%
Peripherals
Servers and 12% 11% 11%
Networking
Enhanced Services 10% 10% 9%
Storage 4% 4% 4%
Net Revenue by
Global Segment:
Large Enterprise $ 3,403 $ 3,285 $ 4,395 4% (23%)
Public 3,695 3,798 3,960 (3%) (7%)
Small and Medium 2,956 2,820 3,647 5% (19%)
Business
Consumer 2,842 2,861 3,160 (1%) (10%)
Consolidated net $ 12,896 $ 12,764 $ 15,162 1% (15%)
revenue
Percentage of Total
Net Revenue:
Large Enterprise 26% 26% 29%
Public 29% 30% 26%
Small and Medium 23% 22% 24%
Business
Consumer 22% 22% 21%
Consolidated
Operating Income:
Large Enterprise $ 174 $ 172 $ 254
Public 352 383 361
Small and Medium 282 246 374
Business
Consumer 10 89 142
Consolidated
segment operating 818 890 1,131
income
Severance and (123) (87) (17)
facility actions
Broad based
long-term (78) (92) (73)
incentives
Amortization of (40) (40) (26)
intangible assets
Consolidated $ 577 $ 671 $ 1,015
operating income
Note: Percentage growth rates and ratios are calculated
based on underlying data in thousands.
DELL INC.
Condensed Consolidated Statement of Income and Related Financial Highlights
(in millions, except per share data and percentages)
(unaudited)
Nine Months Ended % Growth Rates
October 30, October 31,
2009 2008 Yr. to Yr.
Net revenue
Products $ 31,601 $ 41,073 (23%)
Services, including software related 6,401 6,600 (3%)
Net revenue 38,002 47,673 (20%)
Cost of net revenue
Products 27,033 34,966 (23%)
Services, including software related 4,177 4,062 3%
Total cost of net revenue 31,210 39,028 (20%)
Gross margin 6,792 8,645 (21%)
Selling, general and administrative 4,685 5,423 (14%)
Research, development and engineering 445 487 (9%)
In-process research and development - 2 (100%)
Total operating expenses 5,130 5,912 (13%)
Operating income 1,662 2,733 (39%)
Investment and other income (expense), (107) 137 (178%)
net
Income before income taxes 1,555 2,870 (46%)
Income tax provision 456 743 (39%)
Net income $ 1,099 $ 2,127 (48%)
Earnings per common share:
Basic $ 0.56 $ 1.07 (48%)
Diluted $ 0.56 $ 1.06 (47%)
Weighted average shares outstanding:
Basic 1,953 1,993 (2%)
Diluted 1,959 1,998 (2%)
Percentage of Total Net Revenue:
Gross margin 17.9% 18.1%
Selling, general and administrative 12.3% 11.4%
Research and development 1.2% 1.0%
Operating expenses 13.5% 12.4%
Operating income 4.4% 5.7%
Income before income taxes 4.1% 6.0%
Net income 2.9% 4.5%
Income tax rate 29.3% 25.9%
Net Revenue by Product Category:
Mobility $ 11,957 $ 14,605 (18%)
Desktop PCs 9,502 13,826 (31%)
Software and Peripherals 7,022 8,116 (13%)
Servers and Networking 4,228 5,081 (17%)
Enhanced Services 3,700 4,081 (9%)
Storage 1,593 1,964 (19%)
Consolidated net revenue $ 38,002 $ 47,673 (20%)
Percentage of Total Net Revenue:
Mobility 31% 30%
Desktop PCs 25% 29%
Software and Peripherals 18% 17%
Servers and Networking 12% 11%
Enhanced Services 10% 9%
Storage 4% 4%
Net Revenue by Global Segment:
Large Enterprise $ 10,088 $ 14,122 (29%)
Public 10,664 12,051 (12%)
Small and Medium Business 8,743 11,849 (26%)
Consumer 8,507 9,651 (12%)
Consolidated net revenue $ 38,002 $ 47,673 (20%)
Percentage of Total Net Revenue:
Large Enterprise 27% 30%
Public 28% 25%
Small and Medium Business 23% 25%
Consumer 22% 20%
Consolidated Operating Income:
Large Enterprise $ 538 $ 899
Public 1,028 969
Small and Medium Business 758 1,034
Consumer 98 259
Consolidated segment operating income 2,422 3,161
Severance and facility actions (395) (148)
Broad based long-term incentives (246) (201)
In-process research and development - (2)
Amortization of intangible assets (119) (77)
Consolidated operating income $ 1,662 $ 2,733
Note: Percentage growth rates and ratios are calculated based on underlying data
in thousands.
DELL INC.
Condensed Consolidated Statement of Financial Position and Related Financial
Highlights
(in millions, except for "Ratios" and Other information)
(unaudited)
October 30, July 31, October 31,
2009 2009 2008
Assets:
Current assets:
Cash and cash equivalents $ 12,795 $ 11,699 $ 7,910
Short-term investments 331 299 662
Accounts receivable, net 5,279 5,403 5,532
Financing receivables, net 2,318 2,252 1,526
Inventories, net 952 839 1,109
Other 3,196 3,348 4,795
Total current assets 24,871 23,840 21,534
Property, plant and equipment, net 1,978 2,117 2,458
Investments 828 746 374
Long-term financing receivables, net 311 263 435
Goodwill 1,748 1,748 1,743
Purchased intangible assets, net 607 646 750
Other non-current assets 682 698 523
Total assets $ 31,025 $ 30,058 $ 27,817
Liabilities and Equity:
Current liabilities:
Short-term debt $ 351 $ 49 $ 266
Accounts payable 9,947 9,698 9,475
Accrued and other 3,687 3,765 4,108
Short-term deferred enhanced 2,876 2,775 2,572
services revenue
Total current liabilities 16,861 16,287 16,421
Long-term debt 3,442 3,394 1,851
Long-term deferred enhanced services 3,054 3,051 3,001
revenue
Other non-current liabilities 2,643 2,701 2,385
Total liabilities 26,000 25,433 23,658
Stockholders' equity 5,025 4,625 4,159
Total liabilities and equity $ 31,025 $ 30,058 $ 27,817
Ratios:
Days of sales outstanding (1) 40 42 36
Days supply in inventory 8 7 8
Days in accounts payable 84 84 69
Cash conversion cycle (36) (35) (25)
Average total revenue/unit $ 1,290 $ 1,280 $ 1,440
(approximate)
Note: Ratios are calculated based on underlying data in
thousands.
(1) Days of sales outstanding ("DSO") is based on the ending net trade receivables and most recent quarterly revenue for each period. DSO includes the effect of product costs related to customer shipments not yet recognized as revenue that are classified in the other current assets. At October 30, 2009, July 31, 2009, and October 31, 2008, DSO and days of customer shipments not yet recognized were 37 and 3 days, 38 and 4 days, 33 and 3 days, respectively.
DELL INC.
Condensed Consolidated Statements of Cashflows
(in millions, unaudited)
Three Months Ended Nine Months Ended
October 30, October 31, October 30, October 31,
2009 2008 2009 2008
Cash flows from operating
activities:
Net income $ 337 $ 727 $ 1,099 $ 2,127
Adjustments to reconcile
net income to net cash
provided by
operating activities:
Depreciation and 191 194 593 573
amortization
Stock-based compensation 65 73 211 201
In-process research and - - - 2
development charges
Effects of exchange rate
changes on monetary assets
and
liabilities denominated 32 (3) 58 (113)
in foreign currencies
Deferred income taxes 58 228 (33) 209
Provision for doubtful
accounts - including 80 85 290 199
financing receivables
Other 56 (4) 75 17
Changes in operating assets
and liabilities, net of
effects from acquisitions:
Accounts receivable 137 201 (456) (241)
Financing receivables (177) (47) (556) (28)
Inventories (112) (12) (83) 65
Other assets 117 (175) 93 (648)
Accounts payable 233 (1,664) 1,551 (1,992)
Deferred enhanced (4) 19 36 424
services revenue
Accrued and other (212) 292 (240) 370
liabilities
Change in cash from 801 (86) 2,638 1,165
operating activities
Cash flows from investing
activities:
Investments:
Purchases (406) (362) (1,182) (1,150)
Maturities and sales 325 282 1,307 2,034
Capital expenditures (70) (137) (249) (401)
Proceeds from sale of - - 16 44
facility and land
Acquisition of business, - - (3) (165)
net of cash received
Change in cash from (151) (217) (111) 362
investing activities
Cash flows from financing
activities:
Repurchase of common stock - (415) - (2,866)
Issuance of common stock - 11 - 79
under employee plans
Issuance of commercial
paper (maturity 90 days or 143 153 43 253
less), net
Proceeds from debt 257 - 1,748 1,519
Repayments of debt (50) (14) (62) (237)
Change in cash from 350 (265) 1,729 (1,252)
financing activities
Effect of exchange rate
changes on cash and cash 96 (145) 187 (129)
equivalents
Change in cash and cash 1,096 (713) 4,443 146
equivalents
Cash and cash equivalents at 11,699 8,623 8,352 7,764
beginning of period
Cash and cash equivalents at $ 12,795 $ 7,910 $ 12,795 $ 7,910
end of period
Source: Dell Inc.
Released November 19, 2009