Dell's Business Priorities Drive Revenue up 10 Percent in 4th Quarter
Notebooks, Accelerating Sales Outside U.S. Highlight Q4 as Revenue Reaches $16 Billion
ROUND ROCK, Texas--(BUSINESS WIRE)--
Dell (NASDAQ:DELL) today reported results for its fourth quarter of fiscal year 2008, with revenue up 10 percent year-over-year to $16 billion, unit growth of 19 percent, operating income of $776 million and earnings per share of $0.31. Revenue for the full fiscal year was $61.1 billion, an increase of 6 percent year-over-year and earnings per share grew 15 percent to $1.31.
Cash from operations totaled $1.2 billion, while cash and marketable securities at the end of the quarter were $9.5 billion. Dell resumed its share-repurchase program during the quarter, and spent $4 billion to repurchase 179 million shares of common stock. In the first quarter of fiscal 2009 the company expects to spend at least $1 billion to repurchase its shares.
"Execution against our priorities continues to drive growth," said Michael Dell, chairman and CEO. "As businesses and consumers worldwide join the Connected Age -- one that's underscored by more data, more devices and more users -- we see enormous opportunities to enable them to Simplify IT and participate."
Fourth Quarter Fiscal Year
(in millions, except
share data) FY'08 FY'07 Change FY'08 FY'07 Change
------- ------- ------ ------- ------- ------
Revenue $15,989 $14,470 10% $61,133 $57,420 6%
Operating Income $ 776 $ 827 (6%) $ 3,440 $ 3,070 12%
Net Income $ 679 $ 726 (6%) $ 2,947 $ 2,583 14%
EPS $ 0.31 $ 0.32 (3%) $ 1.31 $ 1.14 15%
All comparisons in this press release are year-over-year unless otherwise noted.
Earnings per share in the quarter were affected by the following items:
-- $83 million in expense, or four cents per share, related to
the write-off of in-process research and development resulting
from the acquisitions of EqualLogic and Everdream;
-- $54 million in expense, or two cents per share, related to
business realignment, including severance costs and facility
closures;
-- $27 million in expense, or one cent per share, in
investigation related costs;
-- $11 million in amortization expense of purchased intangible
assets;
-- A reduction in a litigation reserve related to copyright
levies of $58 million, or three cents per share; and,
-- A $44 million expense reduction, or one cent per share,
related to an annual true-up for the full-year of stock award
forfeiture credits related to SFAS123R stock-based
compensation expense.
In the company's fiscal 2007 fourth quarter, earnings per share were affected by the following items:
-- $207 million reduction in the provision for employee bonuses,
or seven cents per share;
-- $89 million in expense, or three cents per share, in
investigation related costs; and,
-- A $36 million one-time gain on the sale of real estate, in
financing and other income, or one cent per share.
These items for both quarters are recognized in different tax jurisdictions and therefore are tax-effected at different rates.
The company is addressing cost and productivity across its entire operations. Over the last eight months the company has reduced its global headcount by 3,200, excluding acquisitions. Dell has also accelerated its product refresh cycles with a renewed emphasis on cost, product design and product features. The award winning Dell Inspiron 1525 went from concept to manufacturing in less than half the time of its predecessor and costs were reduced $70 per unit.
"While Dell continues to drive towards a world-class cost structure and competitiveness we have much work to do," Mr. Dell said. "Resurgent growth puts us on a strong footing to improve our cost position, scale expenses and enhance productivity across our business. I am confident that from this base we can continue to drive improvements in profitability."
Dell's achievements in the fourth quarter were led by continued growth in countries outside the United States, where sales were up 16 percent and accounted for 49 percent of the company's total revenues. Growth was especially strong in BRIC (Brazil, Russia, India and China) countries where revenue grew 36 percent on a 50 percent increase in units. Growth was also strong in Asia Pacific and Japan where revenue grew 28 percent and units were up 41 percent. Americas International revenue grew 22 percent.
Driven by new products, the company increased mobility revenues by 24 percent and unit shipments were up 37 percent. During the year, Dell won more than 400 awards for its products and its notebooks were among the most recognized, demonstrating the company's significant attention to innovative design and customer experience. Services revenue was up seven percent and the company's deferred services revenue balance grew 25 percent to $5.3 billion.
Q4 Execution Highlights Against Business Priorities Include:
-- Consumer: New strategic partnerships with Best Buy in the U.S.;
Tesco and Dixon's Stores (DSGi) based in the U.K. and Carrefour
based in France. More than 10,000 retail stores worldwide now offer
Dell products.
-- Enterprise: Dell continued to Simplify IT with the:
-- Dell PowerEdge M-Series blade server solution delivering 28
percent better performance per-watt than competitive solutions;
-- Dell EqualLogic PS5000 Series, an iSCSI SAN array with a
revolutionary architecture to serve as the backbone for data
center storage and virtualization;
-- Dell ProSupport - flexible, scalable and configurable services
offerings that challenge the way services are traditionally
delivered.
-- Notebooks: Richer multimedia with slim packaging with the new:
-- XPS M1530 and the Inspiron 1525; and,
-- Latitude XT, one of the thinnest and lightest 12.1-inch
convertible tablets available.
-- Small and Medium Business: New products included the Dell AX4-5,
an entry-level storage area network (SAN) solution. PartnerDirect
increases and formalizes Dell's support for its growing family of
30,000 Partners worldwide serving small and medium businesses.
-- Emerging Countries: Dell deepened its support for Emerging
Countries, adding a second manufacturing facility in Europe,
located in Lodz, Poland.
Regional Highlights
-- Americas Business Unit: Revenues were up 7 percent for the
quarter and shipments increased 13 percent driven by a 22
percent increase in revenues from Americas International.
Revenue in Brazil, a key emerging country for Dell, grew 52
percent. Dell maintained its No. 1 position in the U.S.
commercial segment with 35 percent of all units shipped in the
quarter, according to industry analyst estimates. As the
quarter progressed, Dell saw more conservative spending by
some of it customers, particularly in global accounts,
including financial services.
-- U.S. Consumer: Revenue growth accelerated to 12 percent driven
by a 25 percent increase in shipments. Unit share increased by
over three points - the largest quarterly gain in over three
years. New product offerings and expansion into retail
contributed to this performance.
-- Asia-Pacific and Japan (APJ): Revenue in the quarter grew by
28 percent on a 41 percent increase in units. APJ growth was
strong across all product categories and led by performance in
India, China and Australia/New Zealand, where revenue grew
year over year 57 percent, 32 percent, and 29 percent,
respectively. Shipments of notebooks increased 71 percent year
over year for the region.
-- Europe, Middle East and Africa (EMEA): Revenue increased 8
percent and shipments were up 14 percent. Shipments of
notebooks increased 36 percent for the quarter and mobility
revenue was up 25 percent. Revenues in EMEA emerging countries
increased 44 percent.
Company Outlook
The company will continue to incur costs as it realigns its business to improve growth and profitability. While the company believes these actions are necessary to drive long-term sustainable value, they may adversely impact the company's near-term performance. In addition the company's results could be adversely impacted by more conservative spending by its customers. The company is, however, benefiting from accelerating growth and an improving mix of products and geographic regions, and the company expects to achieve substantial improvements in cost and productivity.
Analyst Meeting Update
The Company plans to conduct an analyst meeting on April 2 and 3, 2008, in Round Rock, Texas.
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 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 successfully remediate identified internal control deficiencies; 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; litigation and governmental investigations or proceedings arising out of or related to accounting and financial reporting matters; 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
-----------------
February 1, November 2, February 2, Yr. to
2008 2007 2007 Sequential Yr.
----------- ----------- ------------ ---------- ------
Net revenue $ 15,989 $ 15,646 $ 14,470 2% 10%
Cost of revenue 12,995 12,758 11,991 2% 8%
----------- ----------- ------------
Gross margin 2,994 2,888 2,479 4% 21%
Selling,
general and
administrative 1,981 1,900 1,534 4% 29%
Research and
Development:
Research,
development
and
engineering 154 159 118 (3%) 30%
In-process
research and
development 83 - - N/A N/A
----------- ----------- ------------
Total research
and
development 237 159 118 49% 100%
----------- ----------- ------------
Total
operating
expenses 2,218 2,059 1,652 8% 34%
----------- ----------- ------------
Operating
income 776 829 827 (6%) (6%)
Investment and
other income,
net 106 107 105 (1%) 1%
----------- ----------- ------------
Income before
income taxes 882 936 932 (6%) (5%)
Income tax
provision 203 170 206 19% (2%)
----------- ----------- ------------
Net income $ 679 $ 766 $ 726 (11%) (6%)
=========== =========== ============
Earnings per
common share:
Basic $ 0.31 $ 0.34 $ 0.33 (9%) (6%)
=========== =========== ============
Diluted $ 0.31 $ 0.34 $ 0.32 (9%) (3%)
=========== =========== ============
Weighted
average shares
outstanding:
Basic 2,184 2,236 2,230 (2%) (2%)
Diluted 2,201 2,266 2,251 (3%) (2%)
Percentage of
Total Net
Revenue:
---------------
Gross margin 18.8% 18.5% 17.1%
Selling,
general and
administrative 12.4% 12.2% 10.6%
Total research
and
development 1.5% 1.0% 0.8%
Operating
expenses 13.9% 13.2% 11.4%
Operating
income 4.9% 5.3% 5.7%
Income before
income taxes 5.5% 6.0% 6.4%
Net income 4.2% 4.9% 5.0%
Income tax rate 23.0% 18.2% 22.1%
Net Revenue by
Geographic
Region (in
billions):
---------------
Americas $ 9.5 $ 9.7 $ 8.8 (2%) 8%
Europe 4.2 3.8 3.9 9% 8%
Asia Pacific -
Japan 2.3 2.1 1.8 9% 28%
Percentage of
Total Net
Revenue:
---------------
Americas 60% 62% 61%
Europe 26% 24% 27%
Asia Pacific -
Japan 14% 14% 12%
Net Revenue by
Product
Category (in
billions):
---------------
Desktop PCs $ 4.9 $ 4.8 $ 4.8 2% 2%
Mobility 4.8 4.7 3.9 2% 24%
Servers and
Networking 1.6 1.6 1.6 (2%) 2%
Storage 0.6 0.6 0.6 4% 2%
Services 1.4 1.4 1.3 3% 7%
Software and
Peripherals 2.7 2.5 2.3 5% 15%
Percentage of
Total Net
Revenue:
---------------
Desktop PCs 30% 30% 33%
Mobility 30% 30% 27%
Servers and
Networking 10% 11% 11%
Storage 4% 4% 4%
Services 9% 9% 9%
Software and
Peripherals 17% 16% 16%
Consolidated
Operating
Income
---------------
Americas $ 452 $ 630 $ 586
EMEA 314 211 227
APJ 142 85 89
----------- ----------- ------------
Consolidated
segment
operating
income 908 926 902
Stock-based
compensation
expense (38) (97) (75)
In-process
research and
development (83) - -
Amortization
of purchased
intangible
assets (11) - -
----------- ------------------------
Consolidated
operating
income $ 776 $ 829 $ 827
=========== ========================
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)
(unaudited)
Fiscal Year Ended
-------------------------
February 1, February 2, % Growth Rates
2008 2007 Yr. to Yr.
------------ ------------ ----------------
Net revenue $ 61,133 $ 57,420 6%
Cost of revenue 49,462 47,904 3%
------------ ------------
Gross margin 11,671 9,516 23%
Selling, general and
administrative 7,538 5,948 27%
Research and Development:
Research, development and
engineering 610 498 22%
In-process research and
development 83 - N/A
------------ ------------
Total research and
development 693 498 39%
------------ ------------
Total operating expenses 8,231 6,446 28%
------------ ------------
Operating income 3,440 3,070 12%
Investment and other
income, net 387 275 41%
------------ ------------
Income before income taxes 3,827 3,345 14%
Income tax provision 880 762 16%
------------ ------------
Net income $ 2,947 $ 2,583 14%
============ ============
Earnings per common share:
Basic $ 1.33 $ 1.15 16%
============ ============
Diluted $ 1.31 $ 1.14 15%
============ ============
Weighted average shares
outstanding:
Basic 2,223 2,255 (1%)
Diluted 2,247 2,271 (1%)
Percentage of Total Net
Revenue:
---------------------------
Gross margin 19.1% 16.6%
Selling, general and
administrative 12.3% 10.3%
Total research and
development 1.2% 0.9%
Operating expenses 13.5% 11.2%
Operating income 5.6% 5.4%
Income before income taxes 6.3% 5.8%
Net income 4.8% 4.5%
Income tax rate 23.0% 22.8%
Net Revenue by Geographic
Region (in billions):
---------------------------
Americas $ 37.4 $ 36.4 3%
Europe 15.2 13.7 12%
Asia Pacific - Japan 8.5 7.3 15%
Percentage of Total Net
Revenue:
---------------------------
Americas 61% 63%
Europe 25% 24%
Asia Pacific - Japan 14% 13%
Net Revenue by Product
Category (in billions):
---------------------------
Desktop PCs $ 19.6 $ 19.8 (1%)
Mobility 17.4 15.5 13%
Servers and Networking 6.5 5.8 12%
Storage 2.4 2.2 8%
Services 5.3 5.1 5%
Software and Peripherals 9.9 9.0 10%
Percentage of Total Net
Revenue:
---------------------------
Desktop PCs 32% 34%
Mobility 28% 27%
Servers and Networking 11% 10%
Storage 4% 4%
Services 9% 9%
Software and Peripherals 16% 16%
Consolidated Operating
Income:
---------------------------
Americas $ 2,490 $ 2,523
EMEA 1,009 583
APJ 471 332
------------ ------------
Consolidated segment
operating income 3,970 3,438
Stock-based compensation
expense (436) (368)
In-process research and
development (83) -
Amortization of purchased
intangible assets (11) -
------------ -------------
Consolidated operating
income $ 3,440 $ 3,070
============ =============
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)
February 1, November 2, February 2,
Assets: 2008 2007 2007
------- ------------ ------------ ------------
Current assets:
Cash and cash equivalents $ 7,764 $ 12,236 $ 9,546
Short-term investments 208 369 752
Accounts receivable, net 5,961 6,156 4,622
Financing receivables, net 1,732 1,560 1,530
Inventories, net 1,180 1,102 660
Other 3,035 2,925 2,829
------------ ------------ ------------
Total current assets 19,880 24,348 19,939
Property, plant and equipment,
net 2,668 2,631 2,409
Investments 1,560 1,980 2,147
Long-term financing
receivables, net 407 389 323
Goodwill 1,648 204 110
Purchased intangibles assets,
net 780 69 45
Other non-current assets 618 759 662
------------ ------------ ------------
Total assets $ 27,561 $ 30,380 $ 25,635
============ ============ ============
Liabilities and Stockholders'
Equity:
-------------------------------
Current liabilities:
Short-term borrowings $ 225 $ 266 $ 188
Accounts payable 11,492 11,411 10,430
Accrued and other 4,323 4,269 5,141
Short-term deferred service
revenue 2,486 2,385 2,032
------------ ------------ ------------
Total current
liabilities 18,526 18,331 17,791
Long-term debt 362 392 569
Long-term deferred service
revenue 2,774 2,635 2,189
Other non-current liabilities 2,070 2,077 647
------------ ------------ ------------
Total liabilities 23,732 23,435 21,196
Redeemable common stock 94 101 111
Stockholders' equity 3,735 6,844 4,328
------------ ------------ ------------
Total liabilities and
stockholders' equity $ 27,561 $ 30,380 $ 25,635
============ ============ ============
Ratios
-------
Days supply in inventory 8 8 5
Days of sales outstanding (a) 36 38 31
Days in accounts payable 80 81 78
------------ ------------ ------------
Cash conversion cycle (36) (35) (42)
Other Information:
-------------------------------
Regular headcount (approximate) 82,700 81,900 83,100
Temporary headcount 5,500 7,100 7,200
------------ ------------ ------------
Total headcount 88,200 89,000 90,300
Average total revenue/unit
(approximate) $ 1,480 $ 1,520 $ 1,600
Note: Ratios are calculated based on underlying data in
thousands.
(a) 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 February 1, 2008, November 2, 2007, and February 2, 2007,
DSO and days of customer shipments not yet recognized were 33 and 3
days, 35 and 3 days and 28 and 3 days, respectively.
DELL INC.
Condensed Consolidated Statement of Cash Flows
(in millions)
(unaudited)
Three Months Twelve Months
Ended Ended
------------ -------------
February 1, 2008
--------------------------
Cash flows from operating activities:
Net income $ 679 $ 2,947
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 183 607
Stock-based compensation expense 38 329
In-process research and development
charges 83 83
Tax benefits from stock-based
compensation - (12)
Effects of exchange rate changes on
monetary assets and liabilities
denominated in foreign currencies (10) 30
Other 57 133
Changes in:
Operating working capital 65 (1,619)
Non-current assets and liabilities 102 1,451
------------ -------------
Net cash provided by operating
activities 1,197 3,949
Cash flows from investing activities:
Investments:
Purchases (306) (2,394)
Maturities and sales 934 3,679
Acquisition of businesses, net of cash and
cash equivalents acquired (2,111) (2,217)
Capital expenditures (195) (831)
------------ -------------
Net cash used in investing activities (1,678) (1,763)
Cash flows from financing activities:
Purchases of common stock (4,003) (4,004)
Issuance of common stock under employee
plans 115 136
Excess tax benefits from stock-based
compensation - 12
Payment of commercial paper, net - (100)
Repayments of borrowings (121) (165)
Proceeds from borrowings 28 66
Other (53) (65)
------------ -------------
Net cash used in financing activities (4,034) (4,120)
Effect of exchange rate changes on cash and
cash equivalents 43 152
------------ -------------
Net decrease in cash and cash equivalents (4,472) (1,782)
Cash and cash equivalents at beginning of
period 12,236 9,546
------------ -------------
Cash and cash equivalents at end of period $ 7,764 $ 7,764
============ =============
Additional supplemental information is available on our website at
http://www.dell.com/investor
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
February 1, 2008
-------------------
-------- ---------
Pre-Tax Est. EPS
$M Impact
----------------------------------------------------------- ---------
In-Process Research and Development (a) $ (83) $ (0.04)
Severance & Facility Closures $ (54) $ (0.02)
Investigation Related Costs $ (27) $ (0.01)
Amortization of Purchased Intangibles $ (11) $ (0.00)
Copyright Levy Litigation Reserves (b) $ 58 $ 0.03
Stock Award Forfeitures (c) $ 44 $ 0.01
----------------------------------------------------------- ---------
-------------------
Twelve Months Ended
February 1, 2008
-------------------
-------- ---------
Pre-Tax Est. EPS
$M Impact
----------------------------------------------------------- ---------
Investigation Related Costs $ (160) $ (0.05)
Severance & Facility Closures $ (120) $ (0.04)
Expired Stock Option Payments (d) $ (107) $ (0.03)
In-Process Research and Development (a) $ (83) $ (0.04)
Amortization of Purchased Intangibles $ (21) $ (0.01)
Copyright Levy Litigation Reserves (b) $ 58 $ 0.03
----------------------------------------------------------- ---------
(a) Write-off of purchased technology that was in the development
stage from the acquisitions of EqualLogic and Everdream.
(b) A reduction in litigation reserves related to copyright levies.
(c) Annual true-up of estimated forfeitures related to SFAS No. 123R.
(d) Purchase of expired in-the-money stock options due to delay in
filing FY07 10-K.
These items are recognized in different tax jurisdictions and
therefore are tax-effected at different rates.
Source: Dell Inc.
Released February 28, 2008