Dell Increases Revenue and Earnings in 1Q
June 2, 2008
Dell 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.”
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.
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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.
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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.
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