Dell Improves Business Performance Through Continued Execution of Strategic Agenda
-- Revenue and Earnings Improve Sequentially
-- Cash Flow from Operations Exceeds $1 Billion; Operating Expenses Down 14
Percent
-- Operating Income 5.2 Percent of Revenue
ROUND ROCK, Texas--(BUSINESS WIRE)-- Dell reported improved sequential financial results for its fiscal second-quarter 2010. Product shipments, revenue, operating income, gross margin and earnings were all higher than in the first quarter, and the company continued to reduce operating expenses.
-- Shipmentswere up 10 percent, revenue 3 percent from the first quarter
amid stabilizing spending on information technology. Combined revenue
from servers and storage was up 7 percent sequentially. Revenue of $12.8
billion was 22 percent lower than the year-ago quarter.
-- Earnings were 24 cents, including pretax expenses of $87 million, or
four cents per share, for organizational effectiveness actions.
-- Cash flow from operations was $1.1 billion, as Dell ended the quarter
with $12.7 billion in cash and investments.
-- Gross marginwas 18.7 percent of revenue as strong improvement in cost of
goods sold, disciplined pricing, a sequential increase in sales from
enterprise products, and a $69 million buyout of a revenue-sharing
agreement by a vendor offset previously highlighted pressure from
component costs, competitive pricing and revenue mix in client systems.
-- Operating expenses were 13.5 percent of revenue and $288 million, 14
percent lower than in last year's second quarter.
-- Operating income was $671 million.
Second Quarter Results: (In millions) FY10 FY09 Change Revenue $12,764 $16,434 (22%) Operating Income $671 $819 (18%) Net Income $472 $616 (23%) EPS $0.24 $0.31 (23%) All growth rates are year-over-year.
Business Units:
-- Large Enterpriserevenue totaled $3.3 billion, a 3-percent sequential and
a 32-percent decrease from a year earlier. Lower IT spending by large
companies continued in all major regions of the world. Operating income
in the segment was $172 million.
-- Publicrevenue was $3.8 billion, up 20 percent sequentially and a
16-percent decrease from a year ago. Growth in Dell's larger government
accounts and seasonal education business partially offset weaker demand
in other parts of the business - state and local government and health
care. Operating income was $383 million, a 16-percent year-over-year
increase.
-- Small and Medium Businessrevenue was$2.8 billion, a 5-percent decrease
sequentially and a 29-percent decrease from the fiscal 2009 quarter.
Operating income was $246 million, or 8.7 percent of revenue, up 40
basis points from last year as gross margin improved during the quarter.
-- Consumerhad a 17-percent year-over-yearincrease in unit volumeand
revenue of $2.9 billion, up 2 percent sequentially and a 9-percent
decline from a year ago. Operating income was $89 million, including a
$53 million benefit from the vendor transaction.
Strategic Progress:
-- Since launching its $4 billion cost initiatives last fiscal year, about
70 percent of Dell's total product volume has been redesigned and
optimized to reduce costs.
-- Dell further strengthened its enterprise position in the quarter.
Revenue from EqualLogic storage systems was up 42 percent
year-over-year. Server product shipments were up 12 percent and revenue
was up 9 percent sequentially.
-- Dell continues to build its emerging country presence as combined
revenue from the BRIC countries -- Brazil, Russia, India and China --
grew 16 percent sequentially. Sales in BRIC now comprise 10 percent of
total company revenue.
Quotes:
Michael Dell, chairman and chief executive officer: "We have been reducing complexity in our organization and significantly lowering operating costs, in anticipation of improvement in the global economy and IT spending. If current demand trends continue, we expect revenue for the second half of the year to be stronger than the first half. We are expanding our capabilities in enterprise technology and services and investing in our core business to distinguish Dell both with customers and in operating performance."
Brian Gladden, Dell's chief financial officer: "This quarter again demonstrates the discipline with which we are managing our business and further strengthening our balance sheet. The best path for Dell remains one focused on profitable growth, lower costs and smart use of working capital."
Company Outlook:
-- In the third quarter, the company expects seasonal demand improvements
from the Consumer and U.S. federal government businesses, but the
quarter is also generally a period of slower demand from large
commercial customers in the U.S. and Europe. Dell believes a refresh
cycle in commercial accounts is more likely to occur in 2010, with IT
spending improving first in the U.S. The company continues to see
pressure in the form of component costs and areas of aggressive pricing
in the near term, and continues to take actions to offset these items.
The company will continue to focus on implementing cost improvements and
strategic investments to improve operations for the long term.
About Dell
Dell Inc. (NASDAQ: DELL) listens to customers and delivers innovative technology and services they need and value. For more information, visit www.dell.com. To hear a replay of the second-quarter analysts' call with Michael Dell, chairman and CEO, and Brian Gladden, CFO, go to www.dell.com/investor, or to communicate directly with Dell, go to www.dell.com/dellshares.
Special Note:
Statements in this release that relate to future results and events (including statements about our future financial and operating performance, anticipated customer demand and anticipated component prices) 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; unfavorable results of 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, or changes in tax laws; 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 and Dell EqualLogic 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
July 31, May 1, August 1,
2009 2009 2008 Sequential Yr. to Yr.
Net revenue
Products $ 10,623 $ 10,232 $ 14,147 4% (25%)
Services, including 2,141 2,110 2,287 2% (6%)
software related
Net revenue 12,764 12,342 16,434 3% (22%)
Cost of net revenue
Products 8,978 8,786 12,161 2% (26%)
Services, including 1,395 1,388 1,446 1% (3%)
software related
Total cost of net 10,373 10,174 13,607 2% (24%)
revenue
Gross margin 2,391 2,168 2,827 10% (15%)
Selling, general and 1,571 1,613 1,840 (3%) (15%)
administrative
Research,
development and 149 141 168 5% (12%)
engineering
Total operating 1,720 1,754 2,008 (2%) (14%)
expenses
Operating income 671 414 819 62% (18%)
Investment and other
income (expense), (42 ) (2 ) 18 N/M (337%)
net
Income before income 629 412 837 53% (25%)
taxes
Income tax provision 157 122 221 29% (29%)
Net income $ 472 $ 290 $ 616 63% (23%)
Earnings per common
share:
Basic $ 0.24 $ 0.15 $ 0.31 60% (23%)
Diluted $ 0.24 $ 0.15 $ 0.31 60% (23%)
Weighted average
shares outstanding:
Basic 1,955 1,949 1,991 0% (2%)
Diluted 1,960 1,952 1,999 0% (2%)
Percentage of Total
Net Revenue:
Gross margin 18.7 % 17.6 % 17.2 %
Selling, general and 12.3 % 13.1 % 11.2 %
administrative
Total research and 1.2 % 1.1 % 1.0 %
development
Operating expenses 13.5 % 14.2 % 12.2 %
Operating income 5.2 % 3.4 % 5.0 %
Income before income 4.9 % 3.3 % 5.1 %
taxes
Net income 3.7 % 2.3 % 3.7 %
Income tax rate 25.0 % 29.6 % 26.4 %
Net Revenue by
Product Category:
Mobility $ 3,891 $ 3,875 $ 4,895 0% (21%)
Desktop PCs 3,319 3,163 4,954 5% (33%)
Software and 2,382 2,246 2,790 6% (15%)
Peripherals
Servers and 1,403 1,286 1,733 9% (19%)
Networking
Enhanced Services 1,218 1,238 1,372 (2%) (11%)
Storage 551 534 690 3% (20%)
Consolidated net $ 12,764 $ 12,342 $ 16,434 3% (22%)
revenue
Percentage of Total
Net Revenue:
Mobility 30 % 32 % 30 %
Desktop PCs 26 % 26 % 30 %
Software and 19 % 18 % 17 %
Peripherals
Servers and 11 % 10 % 11 %
Networking
Enhanced Services 10 % 10 % 8 %
Storage 4 % 4 % 4 %
Net Revenue by
Global Segments:
Large Enterprise $ 3,285 $ 3,400 $ 4,806 (3%) (32%)
Public 3,798 3,171 4,510 20% (16%)
Small and Medium 2,820 2,967 3,958 (5%) (29%)
Business
Consumer 2,861 2,804 3,160 2% (9%)
Consolidated net $ 12,764 $ 12,342 $ 16,434 3% (22%)
revenue
Percentage of Total
Net Revenue:
Large Enterprise 26 % 27 % 29 %
Public 30 % 26 % 28 %
Small and Medium 22 % 24 % 24 %
Business
Consumer 22 % 23 % 19 %
Consolidated
Operating Income:
Large Enterprise $ 172 $ 192 $ 259
Public 383 293 331
Small and Medium 246 230 330
Business
Consumer 89 (1 ) 29
Consolidated
segment operating 890 714 949
income
Severance and (87 ) (185 ) (25 )
facility actions
Broad based
long-term (92 ) (76 ) (78 )
incentives
Amortization of (40 ) (39 ) (27 )
intangible assets
Consolidated $ 671 $ 414 $ 819
operating income
Note: Percentage growth rates and ratios are calculated based on underlying data
in thousands.
DELL INC.
Condensed Consolidated Statement of Operations and Related Financial
Highlights
(in millions, except per share data or as otherwise noted)
(unaudited)
Six Months Ended % Growth Rates
July 31, August 1,
2009 2008 Yr. to Yr.
Net revenue
Products $ 20,855 $ 28,103 (26%)
Services, including software related 4,251 4,408 (4%)
Net revenue 25,106 32,511 (23%)
Cost of net revenue
Products 17,764 24,008 (26%)
Services, including software related 2,783 2,711 3%
Total cost of net revenue 20,547 26,719 (23%)
Gross margin 4,559 5,792 (21%)
Selling, general and administrative 3,184 3,752 (15%)
Research, development and engineering 290 320 (9%)
In-process research and development - 2 (100%)
Total operating expenses 3,474 4,074 (15%)
Operating income 1,085 1,718 (37%)
Investment and other income (expense), (44 ) 143 (131%)
net
Income before income taxes 1,041 1,861 (44%)
Income tax provision 279 461 (39%)
Net income $ 762 $ 1,400 (46%)
Earnings per common share:
Basic $ 0.39 $ 0.70 (44%)
Diluted $ 0.39 $ 0.69 (43%)
Weighted average shares outstanding:
Basic 1,952 2,013 (3%)
Diluted 1,956 2,019 (3%)
Percentage of Total Net Revenue:
Gross margin 18.2 % 17.8 %
Selling, general and administrative 12.7 % 11.5 %
Total research and development 1.1 % 1.0 %
Operating expenses 13.8 % 12.5 %
Operating income 4.3 % 5.3 %
Income before income taxes 4.1 % 5.7 %
Net income 3.0 % 4.3 %
Income tax rate 26.8 % 24.8 %
Net Revenue by Product Category:
Mobility $ 7,766 $ 9,744 (20%)
Desktop PCs 6,482 9,735 (33%)
Software and Peripherals 4,628 5,531 (16%)
Servers and Networking 2,689 3,451 (22%)
Enhanced Services 2,456 2,716 (10%)
Storage 1,085 1,334 (19%)
Consolidated net revenue $ 25,106 $ 32,511 (23%)
Percentage of Total Net Revenue:
Mobility 31 % 30 %
Desktop PCs 26 % 30 %
Software and Peripherals 18 % 17 %
Servers and Networking 11 % 11 %
Enhanced Services 10 % 8 %
Storage 4 % 4 %
Net Revenue by Global Segments:
Large Enterprise $ 6,685 $ 9,727 (31%)
Public 6,969 8,091 (14%)
Small and Medium Business 5,787 8,202 (29%)
Consumer 5,665 6,491 (13%)
Consolidated net revenue $ 25,106 $ 32,511 (23%)
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 $ 364 $ 645
Public 676 608
Small and Medium Business 476 660
Consumer 88 117
Consolidated segment operating income 1,604 2,030
Severance and facility actions (272 ) (131 )
Broad based long-term incentives (168 ) (128 )
In-process research and development - (2 )
Amortization of intangible assets (79 ) (51 )
Consolidated operating income $ 1,085 $ 1,718
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)
July 31, May 1, August 1,
2009 2009 2008
Assets:
Current assets:
Cash and cash equivalents $ 11,699 $ 9,691 $ 8,623
Short-term investments 299 434 410
Accounts receivable, net 5,403 4,278 6,451
Financing receivables, net 2,252 1,775 1,629
Inventories, net 839 842 1,104
Other 3,348 2,890 3,559
Total current assets 23,840 19,910 21,776
Property, plant and equipment, net 2,117 2,181 2,588
Investments 746 568 501
Long-term financing receivables, net 263 445 348
Goodwill 1,748 1,742 1,753
Purchased intangible assets, net 646 684 781
Other non-current assets 698 659 660
Total assets $ 30,058 $ 26,189 $ 28,407
Liabilities and Equity:
Current liabilities:
Short-term debt $ 49 $ 101 $ 129
Accounts payable 9,698 7,844 11,215
Accrued and other 3,765 3,513 4,271
Short-term deferred enhanced services 2,775 2,683 2,572
revenue
Total current liabilities 16,287 14,141 18,187
Long-term debt 3,394 2,396 1,840
Long-term deferred enhanced services revenue 3,051 2,954 3,117
Other non-current liabilities 2,701 2,468 2,357
Total liabilities 25,433 21,959 25,501
Redeemable common stock - - 83
Stockholders' equity 4,625 4,230 2,823
Total liabilities and equity $ 30,058 $ 26,189 $ 28,407
Ratios:
Days of sales outstanding (1) 42 34 38
Days supply in inventory 7 7 7
Days in accounts payable 84 69 74
Cash conversion cycle (35 ) (28 ) (29 )
Average total revenue/unit (approximate) $ 1,280 $ 1,360 $ 1,420
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 July 31, 2009, May 1, 2009, and August 1, 2008, DSO and days of customer shipments not yet recognized were 38 and 4 days, 31 and 3 days, 35 and 3 days, respectively.
DELL INC.
Condensed Consolidated Statements of Cashflows
(in millions, unaudited)
Three Months Ended Six Months Ended
July 31, August 1, July 31, August 1,
2009 2008 2009 2008
Cash flows from operating
activities:
Net income $ 472 $ 616 $ 762 $ 1,400
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 201 196 402 379
Stock-based compensation 79 78 146 128
In-process research and - - - 2
development charges
Effects of exchange rate
changes on monetary assets and
liabilities denominated in 26 (20 ) 26 (110 )
foreign currencies
Deferred income taxes (101 ) (53 ) (91 ) (19 )
Other 81 47 173 85
Changes in operating assets and
liabilities, net of effects
from acquisitions:
Accounts receivable (948 ) (495 ) (537 ) (392 )
Financing receivables (352 ) (135 ) (379 ) 19
Inventories 5 153 29 77
Other assets (571 ) (281 ) (24 ) (473 )
Accounts payable 1,801 324 1,318 (328 )
Deferred enhanced services 62 264 40 405
revenue
Accrued and other liabilities 321 414 (28 ) 78
Change in cash from operating 1,076 1,108 1,837 1,251
activities
Cash flows from investing
activities:
Investments:
Purchases (348 ) (616 ) (776 ) (788 )
Maturities and sales 340 1,318 982 1,752
Capital expenditures (99 ) (142 ) (179 ) (264 )
Proceeds from sale of facility 16 44 16 44
and land
Acquisition of business, net - 5 (3 ) (165 )
of cash received
Change in cash from investing (91 ) 609 40 579
activities
Cash flows from financing
activities:
Repurchase of common stock - (1,420 ) - (2,451 )
Issuance of common stock under - 47 - 68
employee plans
Issuance (Payment) of (100 ) (1 ) (100 ) 100
commercial paper, net
Net proceeds from debt 994 - 1,491 1,519
Repayments of debt - - (12 ) (223 )
Change in cash from financing 894 (1,374 ) 1,379 (987 )
activities
Effect of exchange rate changes 129 7 91 16
on cash and cash equivalents
Change in cash and cash 2,008 350 3,347 859
equivalents
Cash and cash equivalents at 9,691 8,273 8,352 7,764
beginning of period
Cash and cash equivalents at end $ 11,699 $ 8,623 $ 11,699 $ 8,623
of period
Source: Dell Inc.
Released August 27, 2009