Dell Increases Revenue and Earnings, Lowers Operating Expenses
Company Gains Share in First Quarter Across All Major Product Categories and Regions
ROUND ROCK, Texas--(BUSINESS WIRE)--
Dell (NASDAQ:DELL) today reported record fiscal first quarter revenue of $16 billion, a 9 percent year-over-year increase, and earnings of $0.38 cents per share, a 12 percent increase. The results were driven by better-than-industry growth of commercial and consumer products and services, and lower operating expense as a percent of revenue.
Product shipments in the quarter increased 22 percent, with servers growing three times the industry rate at 21 percent. Storage revenue increased 15 percent and enhanced services revenue was up 13 percent. Notebook unit growth, a Dell strategic priority, rose sharply at 43 percent and 1.2 times the industry growth rate. Consumer units grew at more than two times the industry rate and the company increased its global share by 1.2 points to 8.8 percent during the quarter.
"We are executing on all points of our strategy to drive growth in every product category and in every part of the world," said Michael Dell, chairman and CEO. "These results are early signs of our progress against our five strategic priorities. Through a continued focus, we expect to continue growing faster than the industry and increase our revenue, profitability and cash flow for greater shareholder value."
First Quarter
(in millions, except share data) FY09 FY08 Change
-----------------------------
Revenue $16,077 $14,722 9%
Operating Income $899 $933 (4%)
Net Income $784 $756 4%
EPS $0.38 $0.34 12%
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.
Earnings per share in the quarter were affected by the following
items:
-- $106 million in expense, or four cents per share, related to
the realignment of our business, including severance costs and
facility closures;
-- $26 million, or one cent per share, in amortization expense of
purchased intangible assets;
-- $19 million in expense, or one cent per share, in
investigation related costs;
-- A $42 million increase in financing and other income, or two
cents per share, related to an error in currency exchange
rates from prior periods;
-- A $46 million, or two cents per share, reversal in the
provision for employee bonuses for fiscal 2008; and,
-- A reduction in a litigation reserve related to a favorable
ruling in a patent case of $55 million, or two cents per
share.
Dell's headcount has been reduced by 7,000 in the past year - including a reduction of about 3,700 in the first quarter - or 8 percent before the impact of acquisitions. Dell has added about 2,700 employees through acquisitions, making the net reduction for the company about 5 percent.
Operating expenses were 12.9 percent of revenue for the quarter. Cash flow from operations was $143 million and impacted by lower payables and tax and bonus payments. The company still expects to generate cash flow from operations in excess of net income on an annualized basis. Dell ended the quarter with $9.8 billion in cash and investments and weighted average shares were 2.04 billion.
In the quarter, Dell issued $1.5 billion in private placement and medium- and long-term notes to be used for general corporate purposes. Dell spent more than $1 billion to repurchase 52 million shares of stock and plans to spend at least $1 billion on share repurchase in the second quarter.
Regional Highlights
Revenue from outside the United States during the quarter surpassed revenue from the U.S. for the first time. BRIC countries - Brazil, Russia, India and China - led accelerated growth in emerging countries with 73 percent year-over-year increase in shipments and 58 percent increase in revenue, and accounted for almost 9 percent of Dell's total revenue.
-- Asia-Pacific and Japan Commercial (APJ): Revenue in the
quarter grew by 19 percent on a 31 percent increase in units.
Operating income was up 52 percent on a balanced country,
segment and product performance. India and China led the
region with revenue increases of 52 percent and 30 percent,
and unit shipment growth of 68 percent and 43 percent,
respectively. APJ growth continued strong across all product
categories, with shipment increases of 46 percent in
notebooks, 23 percent in server shipments and 25 percent in
desktops.
-- Americas Commercial: Total unit growth was up 3 percent driven
by an 11 percent increase in notebooks and a 20 percent
increase in servers, which was more than four times the rate
of the industry.
-- Europe, Middle East and Africa Commercial (EMEA): Revenue
increased 15 percent and shipments were up 30 percent, with a
59 percent increase in shipments of notebooks. Storage revenue
increased 48 percent. Unit growth in the region was led by the
largest countries: United Kingdom up 20 percent; Germany up 26
percent and France up 14 percent.
Strategic Priority Highlights
-- Global Consumer: On improved profitability, revenue grew 20
percent driven by a 47 percent increase in shipments. Dell
grew units at more than two times the rate of the industry and
increased its global share by 1.2 points to 8.8 percent. In
addition to its online and telephone sales channels, Dell
expanded its global retail presence, adding Suning in China
and Costco in the U.S. to reach more than 13,000 retail
locations worldwide.
-- Enterprise: Server revenues were up 4 percent on a 21 percent
increase in units, Dell's fastest unit growth in more than two
years and three times the rate of the industry. The company
gained 1.5 points of share in the quarter. Storage revenue
jumped 15 percent driven by strong growth from Dell's
PowerVault direct attached products and a full quarter of
EqualLogic offerings. Based on company estimates, Dell again
took share worldwide in the first quarter. Enhanced services
revenue was up 13 percent aided by the first full quarter of
the new ProSupport solutions. A leading indicator of services
growth - the deferred services revenue balance - grew 23
percent to $5.4 billion. Dell's Cloud-Computing service and
design model is powering about half of the fastest growing
Chinese internet companies as well as the largest portal in
China. With launch of the Dell EqualLogic PS5000 series IP
SANs and the Dell/EMC AX4 and 5i SANs, Dell extended its
position as the No. 1 provider worldwide of iSCSI SAN
solutions.
-- Notebooks: Notebook units grew 43 percent year-over-year with
revenue growth of 22 percent. In the quarter, Dell released
its first fully ruggedized laptop, the Latitude XFR D630. In
Global Consumer, notebook units increased 78 percent and made
up 60 percent of the product mix.
-- Small and Medium Business: Dell announced a redesigned Vostro
laptop line for small businesses, including the 13.3-inch
Vostro 1310 and the 15.4 inch Vostro 1510. These products are
further expansion of Dell's products designed specifically for
small business customers, including servers, storage and
services.
-- Emerging Countries: BRIC plus the 10 targeted countries in
Dell's emerging countries priority accelerated revenue 47
percent. The company launched the Dell 500 notebook, designed
specifically for the needs of emerging countries, which it is
shipping to great demand in China and India. The Partner
Direct program was launched in Europe and APJ in the quarter.
Company Outlook
Dell will continue to incur costs as it realigns its business to improve competitiveness, reduce headcount and invest in infrastructure and acquisitions. The company is seeing conservatism in IT spending in the U.S. particularly with its global and large customers as well as public, small and medium business accounts. Dell expects the conservatism to continue through the summer, particularly as many of these customer segments are seasonally slower. Dell does not expect the significant component-cost reductions experienced during the first half of last year. In addition, the company also expects to have lower investment and other income driven by reduced investment balances with lower interest rates and increased interest expense driven by a higher level of debt.
Dell expects to continue to benefit from improving performance in areas like emerging countries, notebooks, enterprise and services, which collectively are driving a more diversified portfolio of geographies and products.
Against this backdrop, the company recently shared its goal to lower total cost and is targeting $3 billion in annualized savings by fiscal 2011. Dell's focus remains on growing units faster than the industry, increasing revenue, profitability and cash flow, and making decisions that deliver the best long-term result.
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/conversations. 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 maintain 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; any additional issues or matters that may arise from the ongoing SEC investigation; 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; 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 % Growth Rates
--------------------------- ----------------
May 2, February 1, May 4,
Sequential Yr.
to
2008 2008 2007 Yr.
------- ----------- ------- ---------- -----
Net revenue $16,077 $15,989 $14,722 1% 9%
Cost of revenue 13,112 12,995 11,884 1% 10%
------- ----------- -------
Gross margin 2,965 2,994 2,838 (1%) 4%
Selling, general and
administrative 1,912 1,981 1,763 (3%) 8%
Research and
Development:
Research, development
and engineering 152 154 142 (1%) 7%
In-process research and
development 2 83 - (98%) N/A
------- ----------- -------
Total research and
development 154 237 142 (35%) 9%
------- ----------- -------
Total operating
expenses 2,066 2,218 1,905 (7%) 8%
------- ----------- -------
Operating income 899 776 933 16% (4%)
Investment and other
income, net 125 106 78 18% 61%
------- ----------- -------
Income before income
taxes 1,024 882 1,011 16% 1%
Income tax provision 240 203 255 19% (6%)
------- ----------- -------
Net income $784 $679 $756 15% 4%
======= =========== =======
Earnings per common
share:
Basic $0.39 $0.31 $0.34 26% 15%
======= =========== =======
Diluted $0.38 $0.31 $0.34 23% 12%
======= =========== =======
Weighted average shares
outstanding:
Basic 2,036 2,184 2,234 (7%) (9%)
Diluted 2,040 2,201 2,254 (7%) (10%)
Percentage of Total
Net Revenue:
----------------------
Gross margin 18.4% 18.8% 19.3%
Selling, general and
administrative 11.9% 12.4% 12.0%
Total research and
development 1.0% 1.5% 1.0%
Operating expenses 12.9% 13.9% 13.0%
Operating income 5.5% 4.9% 6.3%
Income before income
taxes 6.4% 5.5% 6.8%
Net income 4.9% 4.2% 5.1%
Income tax rate 23.5% 23.0% 25.2%
Net Revenue by Product
Category:
----------------------
Desktop PCs $4,700 $4,860 $4,942 (3%) (5%)
Mobility 4,904 4,813 4,016 2% 22%
Servers and Networking 1,653 1,612 1,593 3% 4%
Storage 631 649 549 (3%) 15%
Services 1,448 1,401 1,281 3% 13%
Software and Peripherals 2,741 2,654 2,341 3% 17%
Percentage of Total
Net Revenue:
----------------------
Desktop PCs 29% 30% 33%
Mobility 31% 30% 27%
Servers and Networking 10% 10% 11%
Storage 4% 4% 4%
Services 9% 9% 9%
Software and Peripherals 17% 17% 16%
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)
May 2, February 1, May 4,
2008 2008 2007
--------- ------------ ---------
Assets:
-------
Current assets:
Cash and cash equivalents $8,273 $7,764 $9,260
Short-term investments 228 208 919
Accounts receivable, net 6,002 5,961 4,740
Financing receivables, net 1,548 1,732 1,503
Inventories, net 1,258 1,180 764
Other 3,193 3,035 2,585
--------- ------------ ---------
Total current assets 20,502 19,880 19,771
Property, plant and equipment, net 2,642 2,668 2,452
Investments 1,312 1,560 2,058
Long-term financing receivables, net 375 407 349
Goodwill 1,691 1,648 111
Intangible assets, net 808 780 44
Other non-current assets 689 618 759
--------- ------------ ---------
Total assets $28,019 $27,561 $25,544
========= ============ =========
Liabilities and Equity:
-----------------------
Current
liabilities:
Short-term borrowings $131 $225 $334
Accounts payable 10,891 11,492 9,670
Accrued and other 3,829 4,323 3,647
Short-term deferred service revenue 2,518 2,486 2,033
--------- ------------ ---------
Total current liabilities 17,369 18,526 15,684
Long-term debt 1,848 362 381
Long-term deferred service revenue 2,906 2,774 2,375
Other non-current liabilities 2,350 2,070 1,914
--------- ------------ ---------
Total liabilities 24,473 23,732 20,354
Redeemable common stock 92 94 119
Stockholders' equity 3,454 3,735 5,071
--------- ------------ ---------
Total liabilities and equity $28,019 $27,561 $25,544
========= ============ =========
Ratios:
-------
Days supply in
inventory 9 8 6
Days of sales
outstanding (1) 36 36 31
Days in accounts
payable 75 80 73
--------- ------------ ---------
Cash conversion cycle (30) (36) (36)
Other Information:
-------------------
Regular headcount
(approximate) 79,900 82,700 83,600
Temporary headcount 4,700 5,500 5,300
--------- ------------ ---------
Total headcount 84,600 88,200 88,900
Average total
revenue/unit
(approximate) $1,470 $1,480 $1,630
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 other current
assets. At May 2, 2008, February 1, 2008 and May 4, 2007, DSO and
days of customer shipments not yet recognized were 33 and 3 days, 33
and 3 days and 29 and 2 days, respectively.
DELL INC.
Condensed Consolidated Statements of Cashflows
(in millions, unaudited)
Three Months Ended
-------------------
May 2, May 4,
2008 2007
--------- ---------
Cash flows from operating activities:
Net income $ 784 $ 756
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation and amortization 185 132
Stock-based compensation 50 97
Excess tax benefits from stock-based
compensation - (12)
Effects of exchange rate changes on monetary
assets and
liabilities denominated in foreign currencies (90) 22
Other 39 31
Changes in:
Operating working capital (882) (1,054)
Non-current assets and liabilities 57 (71)
--------- ---------
Net cash provided by (used in) operating
activities 143 (99)
Cash flows from investing activities:
Investments:
Purchases (172) (1,104)
Maturities and sales 434 1,068
Capital expenditures (122) (171)
Acquisition of business, net of cash and cash
equivalents acquired (170) -
--------- ---------
Net cash used in investing activities (30) (207)
Cash flows from financing activities:
Repurchase of common stock (1,031) -
Issuance of common stock under employee plans 21 21
Excess tax benefits from stock-based
compensation - 12
Issuance (payment) of commercial paper, net 101 (40)
Proceeds from borrowings 1,490 12
Repayments of borrowings (200) (17)
Other 6 (1)
--------- ---------
Net cash provided by (used in) financing
activities 387 (13)
Effect of exchange rate changes on cash and cash
equivalents 9 33
Net increase (decrease) in cash and cash
equivalents 509 (286)
Cash and cash equivalents at beginning of period 7,764 9,546
--------- ---------
Cash and cash equivalents at end of period $ 8,273 $ 9,260
========= =========
DELL INC.
Segment Information
(in millions, unaudited)
Three Months Ended
--------------------------------------------
May 2, February November August 3, May 4,
1, 2,
2008 2008 2007 2007 2007
------- --------- -------- --------- -------
Net Revenue by Geographic
Region (in millions):
-------------------------
Americas Commercial $7,298 $7,216 $7,834 $7,680 $7,251
EMEA Commercial 3,806 3,680 3,448 3,162 3,317
Asia Pacific - Japan
Commercial 2,024 1,905 1,790 1,765 1,707
Global Consumer 2,949 3,188 2,574 2,169 2,447
------- --------- -------- --------- -------
Consolidated net revenue $16,077 $15,989 $15,646 $14,776 $14,722
======= ========= ======== ========= =======
Percentage of Total Net
Revenue:
-------------------------
Americas Commercial 45% 45% 50% 52% 49%
EMEA Commercial 24% 23% 22% 21% 22%
Asia Pacific - Japan
Commercial 13% 12% 11% 12% 12%
Global Consumer 18% 20% 17% 15% 17%
------- --------- -------- --------- -------
100% 100% 100% 100% 100%
======= ========= ======== ========= =======
Consolidated Operating
Income
-------------------------
Americas Commercial $588 $502 $663 $757 $644
EMEA Commercial 221 283 211 202 282
Asia Pacific - Japan
Commercial 131 120 76 142 86
Global Consumer 35 3 (24) 5 18
------- --------- -------- --------- -------
Consolidated segment
operating income 975 908 926 1,106 1,030
Stock-based compensation
expense (50) (38) (97) (204) (97)
In-process research and
development (2) (83) - - -
Amortization of
intangible assets (24) (11) -
------- --------- -------- --------- -------
Consolidated
operating income $899 $776 $829 $902 $933
======= ========= ======== ========= =======
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
May 2, 2008
-------------------------
-------------------------
Pre-Tax Est. EPS
$M Impact
-------------------------------------------------------------------
Severance & Facility Closures $(106) $(0.04)
Amortization of Purchased Intangibles $ (26) $(0.01)
Investigation Related Costs $ (19) $(0.01)
Exchange Rate Error (a) $ 42 $ 0.02
Bonus Accrual Reversal (b) $ 46 $ 0.02
Patent Litigation Reserve (c) $ 55 $ 0.02
-------------------------------------------------------------------
(a) Error whereas certain balances were not translated at
appropriate currency exchange rates over time.
(b) A reduction in the provision for Fiscal Year 2008 employee
bonuses.
(c) A reduction in litigation reserves related to a patent claim.
These items are recognized in different tax jurisdictions and
therefore are tax-effected at different rates.
Source: Dell Inc.
Released May 29, 2008