Share Gains in All Product Categories and Regions Fuel Dell Revenue Increase in Second Quarter
-- Industry-leading Growth in Enterprise Portfolio and Solutions
-- Profitability Impacted By Strategic Investments To Drive Long-Term Growth
ROUND ROCK, Texas--(BUSINESS WIRE)--
Dell reported fiscal second quarter revenue of $16.4 billion, up 11 percent year-over-year and driven by a 19 percent increase in worldwide product shipments. Earnings per share were $0.31 and cash flow from operations was $1.1 billion.
"We are positioning Dell to win in a new era of global IT spending," said Michael Dell, chairman and CEO. "We have our most competitive product portfolio ever - whether for digital nomads or hyper-scaled data centers. Our growth at a multiple of the industry across all major product categories for the second consecutive quarter affirms we are on track with our five key business priorities - notebooks, consumer, enterprise, SMB and emerging countries."
Operating income was $819 million, or 5 percent of revenue. Gross margins in the quarter were adversely affected by actions to drive growth in strategic areas like Global Consumer and EMEA, as well as an increase in deferred revenue from the sale of successful service offerings in EMEA, which will be recognized in subsequent periods.
Dell's productivity improvements gained momentum in the quarter with operating expenses at 12.2 percent of revenue, a decrease of 1.6 percentage points and the lowest level for Dell in six quarters. Dell's tax rate in the quarter was 26.4 percent.
In the quarter, the company absorbed $27 million of expense for the amortization of purchased intangibles and $25 million in business realignment costs. Each expense was worth about $0.01 in earnings per share. The company remains committed to achieving annualized cost reductions of at least $3 billion by the end of fiscal year 2011.
"We are making progress in improving productivity and reducing costs," said Brian Gladden, Dell CFO. "Strategic actions to accelerate growth in certain areas of our business affected gross margins this quarter and there will be some non-linearity in the improvements in our operating income margins as we rebalance our portfolio, make cost improvements and drive growth."
Second Quarter Year to Date
(in millions, except FY09 FY08 Change FY09 FY08 Change
share data)
-------------------------------------------------
Revenue $ 16,434 $ 14,776 11% $32,511 $ 29,498 10%
Operating Income $ 819 $ 902 (9%) $ 1,718 $ 1,835 (6%)
Net Income $ 616 $ 746 (17%) $ 1,400 $ 1,502 (7%)
EPS $ 0.31 $ 0.33 (6%) $ 0.69 $ 0.66 5%
References to Dell's unit growth as a multiple of the growth of the
industry exclude Dell, and all growth rates are year-over-year unless
otherwise noted.
Dell ended the quarter with $9.5 billion in cash and investments and weighted average shares were 2 billion, a 12 percent reduction. The company spent $1.4 billion to repurchase 60 million shares of stock.
Continued actions have reduced headcount by more than 8,500 in the past year, excluding increases from acquisitions. In the third quarter, the company will attain the goal of 8,900 it set for reductions a little more than a year ago. On an ongoing basis, Dell will invest in strategic growth areas, while focusing on scaling costs and improving productivity.
Business Unit Summaries
-- Asia-Pacific and Japan Commercial: Revenue in the quarter grew
by 16 percent to more than $2 billion and shipments were up 16
percent. Profitability increased 10 percent. Product mix was
balanced, with growth in total shipments more than triple the
industry. Dell increased share by 1.7 points. Mobility led
shipment gains, increasing 27 percent and servers were up 21
percent. Revenue for storage increased 31 percent.
-- Americas Commercial: Revenue increased 5 percent to $8.1
billion on a 7 percent increase in units as Dell remained the
region's No. 1 provider of systems. While operating income
declined, profitability improved sequentially by almost 20
percent, reflecting balanced growth across products. Server
shipments grew 18 percent against flat industry growth.
Mobility units increased 12 percent.
-- Europe, Middle East and Africa Commercial: Revenue increased
11 percent to $3.5 billion and shipments were up 20 percent.
Strategic growth initiatives and an increase in deferred
services revenue caused a decline in operating income. Server
units were up 18 percent, the fastest growth among the top
five vendors, and almost 1.6 times the rate of the industry.
Shipments of notebooks increased 52 percent, also ahead of the
industry rate. Storage revenue increased 17 percent.
-- Global Consumer: Worldwide shipments increased 53 percent and
share was up 1.6 points to 9.1 percent. Dell shipped more than
twice as many consumer laptops this quarter as it did a year
ago, driving revenue up 28 percent to $2.8 billion.
Profitability was roughly break-even as the business expanded
its retail presence and absorbed a litigation expense of $18
million.
Strategic Priority Highlights
-- Enterprise: Dell increased its share in servers worldwide by 3
points. Server revenues were up 5 percent on a 19 percent
increase in units, more than 2.5 times the industry growth
rate. Growth in the quarter benefited from the success of
Dell's cloud computing initiatives featuring energy-efficient
Dell custom solutions. Storage revenue improved 11 percent,
led by Dell's Power Vault disk products and EqualLogic iSCSI
networked storage solutions. Enhanced services revenue was up
14 percent to $1.5 billion driven by an 18 percent increase in
the new ProSupport services. Dell's deferred services balance
increased 22 percent, or $1 billion, for a total deferred
services revenue balance of $5.7 billion. Dell released its
broadest lineup of dedicated virtualization solutions ever in
the quarter, including more than a dozen new servers, tools
and services, as part of its mission to help companies of all
sizes simplify their IT environments.
-- Notebooks: Notebook units grew 44 percent with revenue growth
of 26 percent. Dell recently announced a completely new line
of Latitude and Dell Precision laptops, ranging from the
lightest ultra-portable in the company's history, to the most
powerful mobile workstation. The new Latitude systems provide
breakthrough battery life, brilliant new design and style,
changes inspired by close collaboration with end users.
Coinciding with the introduction of Dell's new laptops, the
company launched a new community site called Digital Nomads
for individuals who desire to always be connected for work and
play no matter their location.
-- Emerging Countries: In BRIC (Brazil, Russia, India, China),
Dell outperformed all major competitors across all product
categories with revenue growth of 41 percent on a 46 percent
increase in units, or at more than three times the industry
growth rate, as the company gained 2.4 points of share. BRIC
now accounts for more than 9 percent of Dell's revenue.
Approximately 47 percent of Dell's overall revenue came from
outside the U.S. in the quarter. Dell this week introduced new
Vostro A laptops and desktops designed specifically for
cost-sensitive growing businesses in emerging economies.
-- Small Medium Business: Dell increased its worldwide share with
shipment growth of 8 percent and a revenue increase of 5
percent. In the quarter, the company responded to customer
need for highly capable and affordable storage to support
data-intensive applications with the Dell PowerVault MD1120,
its first storage expansion enclosure designed with small
form-factor 2.5-inch disk drives.
Company Outlook
Dell intends to continue executing against its five growth priorities and actions to improve competitiveness, with the goal of optimizing growth, earnings and cash flow. Dell will continue to incur costs as it realigns its business to improve competitiveness, reduce headcount and invest in infrastructure and acquisitions. The company sees continued conservatism in IT spending in the U.S., which has extended into Western Europe and several countries in Asia. Demand also is impacted by currency fluctuations. Dell will continue to benefit from improving performance in areas such as emerging countries, notebooks, and enterprise and services, which collectively are driving a more diversified portfolio of geographies and products. The company continues to work aggressively on cost initiatives that will benefit its P&L over time with improved growth, profitability and cash flow.
About Dell
Dell Inc. (NASDAQ: DELL) listens to customers and delivers innovative technology and services they trust and value. Uniquely enabled by its direct business model, Dell is a leading global systems and services company and No. 34 on the Fortune 500. For more information, visit www.dell.com, or to communicate directly with Dell via a variety of online channels, go to www.dell.com/dellshares. To get Dell news direct, visit www.dell.com/RSS.
Special Note
Statements in this press release that relate to future results and events (including statements about future financial and operating performance) are forward-looking statements based on Dell's current expectations. Actual results and events in future periods could differ materially from those projected in these forward-looking statements because of a number of risks and uncertainties including: general economic, business and industry conditions; our ability to re-establish a cost advantage over our competitors; local economic and labor conditions, political instability, unexpected regulatory changes, trade protection measures, tax laws, copyright levies and fluctuations in foreign currency exchange rates; our ability to accurately predict product, customer and geographic sales mix and seasonal sales trends; information technology and manufacturing infrastructure failures; our ability to effectively manage periodic product transitions; disruptions in component or product availability; our ability to maintain a strong internal control environment; our reliance on third-party suppliers for quality product components, including reliance on several single-source or limited-source suppliers; our ability to access the capital markets; unfavorable results of legal proceeding could harm our business and result in substantial costs; our acquisition of other companies; our ability to properly manage the distribution of our products and services; our cost-cutting measures; effective hedging of our exposure to fluctuations in foreign currency exchange rates and interest rates; 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 Dell's business and prospects, see Dell's periodic filings with the Securities and Exchange Commission.
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
----------------------------
August 1, May 2, August 3,
2008 2008 2007
--------- -------- ---------
Net revenue $ 16,434 $16,077 $ 14,776
Cost of revenue 13,607 13,112 11,825
--------- -------- ---------
Gross margin 2,827 2,965 2,951
Selling, general and administrative 1,840 1,912 1,894
Research and Development:
Research, development and engineering 168 152 155
In-process research and development - 2 -
--------- -------- ---------
Total research and development 168 154 155
--------- -------- ---------
Total operating expenses 2,008 2,066 2,049
--------- -------- ---------
Operating income 819 899 902
Investment and other income, net 18 125 96
--------- -------- ---------
Income before income taxes 837 1,024 998
Income tax provision 221 240 252
--------- -------- ---------
Net income $ 616 $ 784 $ 746
========= ======== =========
Earnings per common share:
Basic $ 0.31 $ 0.39 $ 0.33
========= ======== =========
Diluted $ 0.31 $ 0.38 $ 0.33
========= ======== =========
Weighted average shares outstanding:
Basic 1,991 2,036 2,237
Diluted 1,999 2,040 2,264
Percentage of Total Net Revenue:
-----------------------------------------
Gross margin 17.2% 18.4% 19.9%
Selling, general and administrative 11.2% 11.9% 12.8%
Total research and development 1.0% 1.0% 1.0%
Operating expenses 12.2% 12.9% 13.8%
Operating income 5.0% 5.5% 6.1%
Income before income taxes 5.1% 6.4% 6.8%
Net income 3.7% 4.9% 5.1%
Income tax rate 26.4% 23.5% 25.3%
Net Revenue by Product Category:
-----------------------------------------
Desktop PCs $ 4,928 $ 4,700 $ 5,017
Mobility 4,871 4,904 3,865
Software and Peripherals 2,790 2,741 2,380
Servers and Networking 1,702 1,653 1,618
Services 1,462 1,448 1,283
Storage 681 631 613
Percentage of Total Net Revenue:
-----------------------------------------
Desktop PCs 30% 29% 34%
Mobility 30% 31% 26%
Software and Peripherals 17% 17% 16%
Servers and Networking 10% 10% 11%
Services 9% 9% 9%
Storage 4% 4% 4%
Net Revenue by Geographic Region:
-----------------------------------------
Americas Commercial $ 8,096 $ 7,298 $ 7,680
EMEA Commercial 3,503 3,806 3,162
Asia Pacific - Japan Commercial 2,054 2,024 1,765
Global Consumer 2,781 2,949 2,169
--------- -------- ---------
Consolidated net revenue $ 16,434 $16,077 $ 14,776
========= ======== =========
Percentage of Total Net Revenue:
-----------------------------------------
Americas Commercial 49% 45% 52%
EMEA Commercial 21% 24% 21%
Asia Pacific - Japan Commercial 13% 13% 12%
Global Consumer 17% 18% 15%
Consolidated Operating Income
-----------------------------------------
Americas Commercial $ 700 $ 588 $ 757
EMEA Commercial 72 221 202
Asia Pacific - Japan Commercial 157 131 142
Global Consumer (5) 35 5
--------- -------- ---------
Consolidated segment operating income 924 975 1,106
Stock-based compensation expense (78) (50) (204)
In-process research and development - (2) -
Amortization of intangible assets (27) (24)
--------- -------- ---------
Consolidated operating income 819 $ 899 $ 902
========= ======== =========
% Growth Rates
---------------------------
Sequential Yr. to Yr.
------------- -------------
Net revenue 2% 11%
Cost of revenue 4% 15%
Gross margin (5%) (4%)
Selling, general and administrative (4%) (3%)
Research and Development:
Research, development and engineering 11% 9%
In-process research and development (100%) -
Total research and development 10% 9%
Total operating expenses (3%) (2%)
Operating income (9%) (9%)
Investment and other income, net (86%) (82%)
Income before income taxes (18%) (16%)
Income tax provision (8%) (13%)
Net income (21%) (17%)
Earnings per common share:
Basic (21%) (6%)
Diluted (18%) (6%)
Weighted average shares outstanding:
Basic (2%) (11%)
Diluted (2%) (12%)
Percentage of Total Net Revenue:
------------------------------------------
Gross margin
Selling, general and administrative
Total research and development
Operating expenses
Operating income
Income before income taxes
Net income
Income tax rate
Net Revenue by Product Category:
------------------------------------------
Desktop PCs 5% (2%)
Mobility (1%) 26%
Software and Peripherals 2% 17%
Servers and Networking 3% 5%
Services 1% 14%
Storage 8% 11%
Percentage of Total Net Revenue:
------------------------------------------
Desktop PCs
Mobility
Software and Peripherals
Servers and Networking
Services
Storage
Net Revenue by Geographic Region:
------------------------------------------
Americas Commercial 11% 5%
EMEA Commercial (8%) 11%
Asia Pacific - Japan Commercial 1% 16%
Global Consumer (6%) 28%
Consolidated net revenue
Percentage of Total Net Revenue:
------------------------------------------
Americas Commercial
EMEA Commercial
Asia Pacific - Japan Commercial
Global Consumer
Consolidated Operating Income
------------------------------------------
Americas Commercial
EMEA Commercial
Asia Pacific - Japan Commercial
Global Consumer
Consolidated segment operating income
Stock-based compensation expense
In-process research and development
Amortization of intangible assets
Consolidated 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
----------------------
August 1, August 3, Rates
----------
2008 2007 Yr. to Yr.
---------- ---------- ----------
Net revenue $ 32,511 $ 29,498 10%
Cost of revenue 26,719 23,709 13%
---------- ----------
Gross margin 5,792 5,789 0%
Selling, general and administrative 3,752 3,657 3%
Research and Development:
Research, development and
engineering 320 297 8%
In-process research and development 2 - N/A
---------- ----------
Total research and development 322 297 9%
---------- ----------
Total operating expenses 4,074 3,954 3%
---------- ----------
Operating income 1,718 1,835 (6%)
Investment and other income, net 143 174 (18%)
---------- ----------
Income before income taxes 1,861 2,009 (7%)
Income tax provision 461 507 (9%)
---------- ----------
Net income $ 1,400 $ 1,502 (7%)
========== ==========
Earnings per common share:
Basic $ 0.70 $ 0.67 4%
========== ==========
Diluted $ 0.69 $ 0.66 5%
========== ==========
Weighted average shares outstanding:
Basic 2,013 2,236 (10%)
Diluted 2,019 2,259 (11%)
Percentage of Total Net Revenue:
-------------------------------------
Gross margin 17.8% 19.6%
Selling, general and administrative 11.5% 12.4%
Total research and development 1.0% 1.0%
Operating expenses 12.5% 13.4%
Operating income 5.3% 6.2%
Income before income taxes 5.7% 6.8%
Net income 4.3% 5.1%
Income tax rate 24.8% 25.3%
Net Revenue by Product Category:
-------------------------------------
Desktop PCs $ 9,628 $ 9,959 (3%)
Mobility 9,775 7,881 24%
Software and Peripherals 5,531 4,721 17%
Servers and Networking 3,355 3,211 5%
Services 2,910 2,564 14%
Storage 1,312 1,162 13%
Percentage of Total Net Revenue:
-------------------------------------
Desktop PCs 30% 34%
Mobility 30% 26%
Software and Peripherals 17% 16%
Servers and Networking 10% 11%
Services 9% 9%
Storage 4% 4%
Net Revenue by Geographic Region:
-------------------------------------
Americas Commercial $ 15,394 $ 14,931 3%
EMEA Commercial 7,309 6,479 13%
Asia Pacific - Japan Commercial 4,078 3,472 17%
Global Consumer 5,730 4,616 24%
---------- ----------
Consolidated net revenue $ 32,511 $ 29,498
========== ==========
Percentage of Total Net Revenue:
-------------------------------------
Americas Commercial 47% 50%
EMEA Commercial 22% 22%
Asia Pacific - Japan Commercial 13% 12%
Global Consumer 18% 16%
Consolidated Operating Income
-------------------------------------
Americas Commercial $ 1,288 $ 1,401
EMEA Commercial 293 484
Asia Pacific - Japan Commercial 288 228
Global Consumer 30 23
---------- ----------
Consolidated segment operating income 1,899 2,136
Stock-based compensation expense (128) (301)
In-process research and development (2) -
Amortization of intangible assets (51) -
---------- ----------
Consolidated operating income $ 1,718 $ 1,835
========== ==========
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)
August 1, May 2, August 3,
2008 2008 2007 (2)
--------- -------- ---------
Assets:
-----------------------------------------
Current assets:
Cash and cash equivalents $ 8,623 $ 8,273 $11,204
Short-term investments 410 228 658
Accounts receivable, net 6,451 6,002 5,296
Financing receivables, net 1,629 1,548 1,531
Inventories, net 1,104 1,258 973
Other 3,559 3,193 2,552
--------- -------- ---------
Total current assets 21,776 20,502 22,214
Property, plant and equipment, net 2,588 2,642 2,608
Investments 501 1,312 1,960
Long-term financing receivables, net 348 375 375
Goodwill 1,753 1,691 122
Purchased intangible assets, net 781 808 41
Other non-current assets 660 689 734
--------- -------- ---------
Total assets $ 28,407 $28,019 $28,054
========= ======== =========
Liabilities and Equity:
-----------------------------------------
Current liabilities:
Short-term debt $ 129 $ 131 $ 328
Accounts payable 11,215 10,891 10,578
Accrued and other 4,271 3,829 4,119
Short-term deferred service revenue 2,572 2,518 2,223
--------- -------- ---------
Total current liabilities 18,187 17,369 17,248
Long-term debt 1,840 1,848 378
Long-term deferred service revenue 3,117 2,906 2,438
Other non-current liabilities 2,357 2,350 1,946
--------- -------- ---------
Total liabilities 25,501 24,473 22,010
Redeemable common stock 83 92 116
Stockholders' equity 2,823 3,454 5,928
--------- -------- ---------
Total liabilities and equity $ 28,407 $28,019 $28,054
========= ======== =========
Ratios:
-----------------------------------------
Days of sales outstanding (1) 38 36 35
Days supply in inventory 7 9 7
Days in accounts payable 74 75 80
--------- -------- ---------
Cash conversion cycle (29) (30) (38)
Other Information:
-----------------------------------------
Regular headcount (approximate) 79,300 79,900 84,000
Temporary headcount 3,700 4,700 7,100
--------- -------- ---------
Total headcount 83,000 84,600 91,100
Average total revenue/unit (approximate) $ 1,420 $ 1,470 $ 1,520
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 August 1, 2008, May 2, 2008 and August 3,2007, DSO and days of customer shipments not yet recognized were 35 and 3 days, 33 and 3 days and 32 and 3, respectively.
(2) Prior period amounts have been revised to reflect a reclassification between short-term and long-term deferred service revenue.
DELL INC.
Condensed Consolidated Statements of Cashflows
(in millions, unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
August 1, August 3, August 1, August 3,
2008 2007 2008 2007
--------- --------- --------- ---------
Cash flows from operating
activities:
Net income $ 616 $ 746 $ 1,400 $ 1,502
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 196 139 381 271
Stock-based compensation 78 97 128 194
Excess tax benefits from
stock-based compensation - - - (12)
Effects of exchange rate
changes on monetary
assets and liabilities
denominated in foreign
currencies (20) 9 (110) 31
Deferred income taxes (53) 68 (19) (61)
Other 47 (3) 85 28
Changes in operating assets
and liabilities, net of
effects from acquisitions:
Accounts receivable (495) (521) (392) (565)
Financing receivables (135) (87) 19 (118)
Inventories 153 (208) 77 (311)
Other assets (281) (85) (473) 92
Accounts payable 324 890 (328) 114
Deferred service revenue 264 277 405 440
Accrued and other
liabilities 414 531 78 149
--------- --------- --------- ---------
Change in cash from
operating activities 1,108 1,853 1,251 1,754
Cash flows from investing
activities:
Investments:
Purchases (616) (661) (788) (1,765)
Maturities and sales 1,318 1,059 1,752 2,127
Capital expenditures (142) (293) (264) (464)
Proceeds from sale of
facility and land 44 - 44 -
Acquisition of business, net
of cash received 5 (19) (165) (19)
--------- --------- --------- ---------
Change in cash from
investing activities 609 86 579 (121)
Cash flows from financing
activities:
Repurchase of common stock (1,420) - (2,451) -
Issuance of common stock
under employee plans 47 - 68 21
Excess tax benefits from
stock-based compensation - - - 12
Issuance (payment) of
commercial paper, net (1) - 100 (40)
Proceeds from issuance of
debt - 13 1,519 25
Repayments of debt - (11) (223) (29)
Other - (5) - (5)
--------- --------- --------- ---------
Change in cash from
financing activities (1,374) (3) (987) (16)
Effect of exchange rate
changes on cash and cash
equivalents 7 8 16 41
Change in cash and cash
equivalents 350 1,944 859 1,658
Cash and cash equivalents at
beginning of period 8,273 9,260 7,764 9,546
--------- --------- --------- ---------
Cash and cash equivalents at
end of period $ 8,623 $ 11,204 $ 8,623 $ 11,204
========= ========= ========= =========
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 August 1,
2008
------------------------------
------------------------------
Pre-Tax $M Est. EPS Impact
----------------------------------------------------------------------
Amortization of Purchased Intangibles $ (27) $ (0.01)
Severance & Facility Closures $ (25) $ (0.01)
----------------------------------------------------------------------
Source: Dell Inc.
Released August 28, 2008