Sharp Cost Reductions and Operational Execution Highlight Dell's Fiscal Fourth-Quarter Results
Q4 Operating Expenses Down $363 Million Year-Over-Year Cash Flow from Operations $729 Million, Nearly $2 Billion for Full Year Company Raises Fiscal 2011 Cost-Reduction Goal from $3 Billion to $4 Billion
ROUND ROCK, Texas--(BUSINESS WIRE)-- Dell today said it achieved solid operating results in the midst of a global downturn in IT spending, as it announced fiscal fourth-quarter results that included a 16-percent year-over-year reduction in operating expenses, along with solid cash flow from operations.
Revenue for the quarter ended Jan. 30 was $13.4 billion, a decline of 16 percent. Earnings per share were 18 cents, which includes previously announced pretax expenses of $277 million or 11 cents per share. The expenses consisted of $134 million in organizational effectiveness and $143 million related to stock-based compensation. Operating expenses were down $363 million from the same quarter a year ago and cash flow from operations for the quarter was $729 million.
Revenue for all of fiscal 2009 was $61.1 billion; full-year earnings were $1.25 per share.
Fourth Quarter Fiscal Year
(in millions, except share FY09 FY08 Change FY09 FY08 Change
data)
Revenue $13,428 $15,989 (16%) $61,101 $61,133 0%
Operating Income $457 $776 (41%) $3,190 $3,440 (7%)
Net Income $351 $679 (48%) $2,478 $2,947 (16%)
EPS $0.18 $0.31 (42%) $1.25 $1.31 (5%)
All growth rates in this release are year-over-year
unless otherwise noted.
"Customers know they need information technology, and we think we're best able to help them use IT to improve productivity," said Michael Dell, chairman and chief executive officer. "But a lot of IT spending is being deferred until there's better economic visibility.
"Within our business, we're being very disciplined in managing costs, generating profitability and cash flow, and investing in ways that separate Dell from others today and when the economy inevitably improves."
Mr. Dell said that for the past 18 months, the company has been sharpening customer focus, redefining priorities, and speeding decisions and actions. It has also prioritized five growth initiatives - notebooks, enterprise technologies, consumers, small and medium businesses, and emerging countries - and achieved a number of successes in those areas, including:
-- Producing its best-ever enterprise and mobility products, overall
winning more than 420 product and design awards last year;
-- Providing customers broader access to Dell technology through retail and
commercial channel partners;
-- Improving profitability in the consumer business; and,
-- Growing faster than industry rates in the world's most rapidly expanding
economies.
As announced on Dec. 31, the company is organizing into four, customer-centered global business units - Large Enterprise, Public, Small and Medium Business, and Consumer - to better meet customer and partner requirements through direct relationships, and to innovate without ties to costly, complex legacy technology.
The company's cost reductions along the way have been significant.
"We said last March that we would reduce costs by $3 billion annually by the end of fiscal 2011," said Brian Gladden, Dell's chief financial officer. "The cost actions we took this past year made us more competitive and delivered value to customers in a challenging economic environment.
"In fact, we now have a clear view to additional opportunities, and are raising our cost-reduction target to $4 billion."
Many of those actions have occurred since Dell first identified slowing IT-industry spending in the U.S. a year ago. Deferred spending has increased and spread worldwide, significantly affecting overall fourth quarter demand across all regions and customer segments.
Revenue for the quarter in Dell's Americas Commercial business was $6 billion, a 17-percent decline on a 23-percent decrease in units. Dell continued to be the No. 1 computer-systems provider in the Americas, where demand was down significantly among all customers, particularly small and medium businesses and largest corporate customers. For the full fiscal year, revenue was $28.6 billion, a 5-percent decline.
EMEA Commercial revenue was $3 billion for the quarter, a 17-percent decline. Product shipments for the quarter were down 19 percent as softness in demand spread to emerging countries. For the full fiscal-year 2009, revenue was $13.6 billion, essentially flat from the previous year.
Revenue for Dell's APJ Commercial business was $1.4 billion for the quarter, a 24-percent decline on a 19-percent decrease in shipments, as growth slowed in key countries including China and India. For the full year, revenue increased 2 percent to $7.3 billion.
Global Consumer achieved a shipment increase of 18 percent and increased global share to nearly 9 percent. With more consumers choosing lower-priced notebooks and desktops, revenue declined 7 percent to $3 billion. Full-year revenue increased 11 percent to $11.5 billion. The company continues to expand its retail reach worldwide and now has its growing range of products in more than 24,000 outlets.
Company Outlook
Dell believes that global IT end-user demand will continue to be uncertain and challenging. The company will maintain its focus on areas that it can control, especially those that benefit customers, including product quality, services and costs. Dell's new global organization aligns the company even more closely with different types of customers, to best understand and efficiently act on their needs. Dell will continue to manage its mix of products and services to optimize liquidity, profitability and growth. The company expects to absorb organizational effectiveness expenses in the first quarter of fiscal 2010 at a similar level as in Q4, as Dell further streamlines its business to improve competitiveness.
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 fourth 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 press release that relate to future results and events (including statements about our future financial and operating performance) 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; 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 is a trademark 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)
(unaudited)
Three Months Ended % Growth Rates
January 30, October 31, February 1,
2009 2008 2008 Sequential Yr. to Yr.
Net revenue $ 13,428 $ 15,162 $ 15,989 (11%) (16%)
Cost of revenue 11,116 12,309 12,995 (10%) (14%)
Gross margin 2,312 2,853 2,994 (19%) (23%)
Selling, general 1,679 1,671 1,981 1% (15%)
and administrative
Research and
Development:
Research,
development and 176 167 154 6% 14%
engineering
In-process
research and - - 83 N/A N/A
development
Total research and 176 167 237 6% (26%)
development
Total operating 1,855 1,838 2,218 1% (16%)
expenses
Operating income 457 1,015 776 (55%) (41%)
Investment and (3) (6) 106 47% (103%)
other income, net
Income before 454 1,009 882 (55%) (49%)
income taxes
Income tax 103 282 203 (64%) (49%)
provision
Net income $ 351 $ 727 $ 679 (52%) (48%)
Earnings per common
share:
Basic $ 0.18 $ 0.37 $ 0.31 (51%) (42%)
Diluted $ 0.18 $ 0.37 $ 0.31 (51%) (42%)
Weighted average
shares outstanding:
Basic 1,944 1,953 2,184 (0%) (11%)
Diluted 1,948 1,957 2,201 (0%) (11%)
Percentage of Total
Net Revenue:
Gross margin 17.2% 18.8% 18.8%
Selling, general 12.5% 11.0% 12.4%
and administrative
Total research and 1.3% 1.1% 1.5%
development
Operating expenses 13.8% 12.1% 13.9%
Operating income 3.4% 6.7% 4.9%
Income before 3.4% 6.7% 5.5%
income taxes
Net income 2.6% 4.8% 4.2%
Income tax rate 22.6% 28.0% 23.0%
Net Revenue by
Product Category:
Mobility $ 4,014 $ 4,849 $ 4,813 (17%) (17%)
Desktop PCs 3,532 4,083 4,860 (13%) (27%)
Software and 2,487 2,586 2,654 (4%) (6%)
Peripherals
Servers and 1,347 1,573 1,612 (14%) (16%)
Networking
Services 1,356 1,449 1,401 (6%) (3%)
Storage 692 622 649 11% 7%
Percentage of Total
Net Revenue:
Mobility 30% 32% 30%
Desktop PCs 26% 27% 30%
Software and 19% 17% 17%
Peripherals
Servers and 10% 10% 10%
Networking
Services 10% 10% 9%
Storage 5% 4% 4%
Net Revenue by
Geographic Region:
Americas Commercial $ 5,991 $ 7,229 $ 7,216 (17%) (17%)
EMEA Commercial 3,036 3,272 3,680 (7%) (17%)
Asia Pacific - 1,445 1,818 1,905 (21%) (24%)
Japan Commercial
Global Consumer 2,956 2,843 3,188 4% (7%)
Consolidated net $ 13,428 $ 15,162 $ 15,989
revenue
Percentage of Total
Net Revenue:
Americas Commercial 45% 48% 45%
EMEA Commercial 22% 21% 23%
Asia Pacific - 11% 12% 12%
Japan Commercial
Global Consumer 22% 19% 20%
Consolidated
Operating Income
Americas Commercial $ 517 $ 763 $ 502
EMEA Commercial 135 116 283
Asia Pacific - 47 123 120
Japan Commercial
Global Consumer 1 112 3
Consolidated
segment operating 700 1,114 908
income
Stock-based
compensation (217) (73) (38)
expense
In-process
research and - - (83)
development
Amortization of (26) (26) (11)
intangible assets
Consolidated $ 457 $ 1,015 $ 776
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)
(unaudited)
Fiscal Year Ended % Growth
January 30, February 1, Rates
2009 2008 Yr. to Yr.
Net revenue $ 61,101 $ 61,133 (0%)
Cost of revenue 50,144 49,462 1%
Gross margin 10,957 11,671 (6%)
Selling, general and administrative 7,102 7,538 (6%)
Research and Development:
Research, development and engineering 663 610 9%
In-process research and development 2 83 (98%)
Total research and development 665 693 (4%)
Total operating expenses 7,767 8,231 (6%)
Operating income 3,190 3,440 (7%)
Investment and other income, net 134 387 (65%)
Income before income taxes 3,324 3,827 (13%)
Income tax provision 846 880 (4%)
Net income $ 2,478 $ 2,947 (16%)
Earnings per common share:
Basic $ 1.25 $ 1.33 (6%)
Diluted $ 1.25 $ 1.31 (5%)
Weighted average shares outstanding:
Basic 1,980 2,223 (11%)
Diluted 1,986 2,247 (12%)
Percentage of Total Net Revenue:
Gross margin 17.9% 19.1%
Selling, general and administrative 11.6% 12.4%
Total research and development 1.1% 1.1%
Operating expenses 12.7% 13.5%
Operating income 5.2% 5.6%
Income before income taxes 5.4% 6.3%
Net income 4.1% 4.8%
Income tax rate 25.4% 23.0%
Net Revenue by Product Category:
Mobility $ 18,638 $ 17,423 7%
Desktop PCs 17,244 19,573 (12%)
Software and Peripherals 10,603 9,908 7%
Servers and Networking 6,275 6,474 (3%)
Services 5,715 5,320 7%
Storage 2,626 2,435 8%
Percentage of Total Net Revenue:
Mobility 31% 28%
Desktop PCs 29% 32%
Software and Peripherals 17% 16%
Servers and Networking 10% 11%
Services 9% 9%
Storage 4% 4%
Net Revenue by Geographic Region:
Americas Commercial $ 28,614 $ 29,981 (5%)
EMEA Commercial 13,617 13,607 0%
Asia Pacific - Japan Commercial 7,341 7,167 2%
Global Consumer 11,529 10,378 11%
Consolidated net revenue $ 61,101 $ 61,133
Percentage of Total Net Revenue:
Americas Commercial 47% 49%
EMEA Commercial 22% 22%
Asia Pacific - Japan Commercial 12% 12%
Global Consumer 19% 17%
Consolidated Operating Income
Americas Commercial $ 2,568 $ 2,566
EMEA Commercial 544 978
Asia Pacific - Japan Commercial 458 424
Global Consumer 143 2
Consolidated segment operating income 3,713 3,970
Stock-based compensation expense (418) (436)
In-process research and development (2) (83)
Amortization of intangible assets (103) (11)
Consolidated operating income $ 3,190 $ 3,440
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)
January 30, October 31, February 1,
2009 2008 2008
Assets:
Current assets:
Cash and cash equivalents $ 8,352 $ 7,910 $ 7,764
Short-term investments 740 662 208
Accounts receivable, net 4,731 5,532 5,961
Financing receivables, net 1,712 1,526 1,732
Inventories, net 867 1,109 1,180
Other 3,749 4,795 3,035
Total current assets 20,151 21,534 19,880
Property, plant and equipment, net 2,277 2,458 2,668
Investments 454 374 1,560
Long-term financing receivables, net 500 435 407
Goodwill 1,737 1,743 1,648
Purchased intangible assets, net 724 750 780
Other non-current assets 657 523 618
Total assets $ 26,500 $ 27,817 $ 27,561
Liabilities and Equity:
Current liabilities:
Short-term debt $ 113 $ 266 $ 225
Accounts payable 8,309 9,475 11,492
Accrued and other 3,788 4,108 4,323
Short-term deferred service revenue 2,649 2,572 2,486
Total current liabilities 14,859 16,421 18,526
Long-term debt 1,898 1,851 362
Long-term deferred service revenue 3,000 3,001 2,774
Other non-current liabilities 2,472 2,385 2,070
Total liabilities 22,229 23,658 23,732
Redeemable common stock - - 94
Stockholders' equity 4,271 4,159 3,735
Total liabilities and equity $ 26,500 $ 27,817 $ 27,561
Ratios:
Days of sales outstanding (1) 35 36 36
Days supply in inventory 7 8 8
Days in accounts payable 67 69 80
Cash conversion cycle (25) (25) (36)
Other Information:
Regular headcount (approximate) 76,500 77,700 82,700
Temporary headcount 2,400 3,100 5,500
Total headcount 78,900 80,800 88,200
Average total revenue/unit (approximate) $ 1,410 $ 1,440 $ 1,480
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 January 30, 2009,
October 31, 2008, and February 1, 2008, DSO and days of customer shipments not
yet recognized were 31 and 4 days, 33 and 3 days, and 33 and 3 days,
respectively.
DELL INC.
Condensed Consolidated Statements of Cashflows
(in millions, unaudited)
Three Months Ended Twelve Months Ended
January 30, February 1, January 30, February 1,
2009 2008 2009 2008
Cash flows from operating
activities:
Net income $ 351 $ 679 $ 2,478 $ 2,947
Adjustments to reconcile
net income to net cash
provided by
operating activities:
Depreciation and 196 183 769 607
amortization
Stock-based compensation 217 38 418 329
In-process research and - 83 2 83
development charges
Effects of exchange rate
changes on monetary assets
and
liabilities denominated (2 ) (10 ) (115 ) 30
in foreign currencies
Deferred income taxes (151 ) (222 ) 58 (308 )
Other 94 57 231 121
Changes in operating assets
and liabilities, net of
effects from acquisitions:
Accounts receivable 753 323 591 (990 )
Financing receivables (274 ) (210 ) (302 ) (394 )
Inventories 244 (61 ) 309 (498 )
Other assets 542 157 (106 ) (121 )
Accounts payable (1,125 ) (62 ) (3,117 ) 837
Deferred service revenue 187 242 611 1,032
Accrued and other (303 ) - 67 274
liabilities
Change in cash from 729 1,197 1,894 3,949
operating activities
Cash flows from investing
activities:
Investments:
Purchases (434 ) (306 ) (1,584 ) (2,394 )
Maturities and sales 299 934 2,333 3,679
Capital expenditures (39 ) (195 ) (440 ) (831 )
Proceeds from sale of - - 44 -
facility and land
Acquisition of business, (11 ) (2,111 ) (176 ) (2,217 )
net of cash received
Change in cash from (185 ) (1,678 ) 177 (1,763 )
investing activities
Cash flows from financing
activities:
Repurchase of common stock (1 ) (4,003 ) (2,867 ) (4,004 )
Issuance of common stock - 115 79 136
under employee plans
Issuance (payment) of (153 ) - 100 (100 )
commercial paper, net
Proceeds from issuance of - 28 1,519 66
debt
Repayments of debt - (121 ) (237 ) (165 )
Other - (53 ) - (53 )
Change in cash from (154 ) (4,034 ) (1,406 ) (4,120 )
financing activities
Effect of exchange rate
changes on cash and cash 52 43 (77 ) 152
equivalents
Change in cash and cash 442 (4,472 ) 588 (1,782 )
equivalents
Cash and cash equivalents at 7,910 12,236 7,764 9,546
beginning of period
Cash and cash equivalents at $ 8,352 $ 7,764 $ 8,352 $ 7,764
end of period
DELL INC.
Supplementary Items
(in millions, except per share data)
(unaudited)
The following supplemental data is provided for additional information.
All items are included in Dell's U.S. GAAP results.
Three Months Ended
January 30, 2009
Pre-Tax Est. EPS
$M Impact
Severance & Facility Closures $ (134 ) $ (0.06 )
Stock Option Acceleration $ (104 ) $ (0.04 )
Stock Award Forfeitures (a) $ (39 ) $ (0.01 )
Twelve Months Ended
January 30, 2009
Pre-Tax Est. EPS
$M Impact
Severance & Facility Closures $ (282 ) $ (0.12 )
Stock Option Acceleration $ (104 ) $ (0.04 )
Amortization of Purchased Intangibles $ (103 ) $ (0.03 )
Investigation Related Costs $ (43 ) $ (0.01 )
Exchange Rate Error $ 42 $ 0.02
Reversal of prior year bonus accrual $ 46 $ 0.02
Patent Litigation Reserve $ 55 $ 0.02
(a) Annual true-up of estimated forfeitures related to SFAS No. 123R
Source: Dell Inc.
Released February 26, 2009