Global Growth in Dell’s Enterprise Solutions Contributes to Strong First Quarter Results
On June 10, 2010, Dell issued a press release announcing that, as a result of ongoing discussions with the U.S. Securities and Exchange Commission, Dell has revised the financial results that were reported on May 20, 2010, to record a $100 million liability related to the potential settlement of the previously reported SEC investigation.
Commercial customers increased their purchases of Dell’s open, capable and affordable enterprise solutions in the fiscal first quarter, contributing to the company’s continued robust revenue, operating income and shipment growth.
Fiscal-Year 2011 First Quarter Highlights
- Total revenue in the quarter ended April 30 was $14.9 billion, a 21-percent increase from a year ago.
- Results reflect the powerful combination of Dell and Perot Systems and sound company execution in an overall improving business environment.
- GAAP operating income of $619 million was 4.2 percent of revenue. Non-GAAP operating income was $824 million, or 5.5 percent of revenue, outpacing revenue growth with a 29-percent increase.
First Quarter Results:
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|Operating Income (non-GAAP)|
|Net Income (non-GAAP)|
Information about Dell’s use of non-GAAP financial information is provided under “Non-GAAP Financial Measures” below. Non-GAAP financial information excludes costs related primarily to the amortization of purchased intangibles, severance and facility-action costs, acquisition-related charges and a provision for settlement of securities class-action litigation. All comparisons in this press release are year over year unless otherwise noted.
- GAAP gross margin was 16.9 percent of revenue. Non-GAAP gross margin was 17.6 percent of revenue.
- GAAP operating expenses were 12.7 percent of revenue. Non-GAAP operating expenses were 12 percent of revenue, or $1.79 billion, down from 13.1 percent a year ago as Dell continues its strict discipline on costs and operational execution.
- GAAP operating income was $619 million, or 4.2 percent of revenue. Non-GAAP operating income was $824 million, or 5.5 percent of revenue.
- Cash flow from operations was $238 million for the quarter.
- The company resumed its stock buyback program during the quarter; spending $200 million to repurchase stock.
- Virtualization, cloud computing, and heightened data storage requirements are prompting customers to use their existing investments more efficiently and make new investments in enterprise innovation that drive business value. In meeting this customer need, Dell had a 39-percent increase in server revenue in the quarter. Revenue for EqualLogic storage products grew more than 75 percent. Revenue from services, boosted by the addition of Perot Systems, increased 53 percent as Dell builds its capabilities to provide end-to-end expertise globally.
- Business in BRIC (Brazil, Russia, India and China) countries continued to grow. Revenue for those countries increased 60 percent, led by India’s 90-percent growth and Brazil’s 81 percent. China had revenue growth of 44 percent and represents a critical growth engine for the company.
- Mobility revenue was up 18 percent. The company introduced the Vostro 3000 series designed for small businesses that require robust mobile computing solutions featuring powerful processors, high-end graphics and built-in security. Dell also enhanced its Latitude family of commercial laptops with new Intel Core i5 and Core i7 processors and other new standards-based features.
- Large Enterprise revenue was $4.2 billion, up 25 percent, led by a 61-percent increase in server revenue and a 44-percent increase in services revenue. Operating income for the quarter was $283 million, a 47-percent improvement. As Dell commercial customers were increasing their spending, they had more enterprise choices with the introduction of PowerEdge blade, rack-mount and tower servers along with enhancements to Dell Lifecycle Controller and Dell Management Console (DMC). These solutions offer customers a robust platform and management capability for virtualization, server consolidation, mission-critical business and database applications.
- Public revenue was $3.9 billion, an increase of 22 percent. Operating income for the quarter was $298 million, a 2-percent improvement. Revenue from services, which includes Perot Systems, more than doubled from a year ago. Dell is the No. 1 healthcare information technology services provider in the world according to the latest IT services worldwide share report by Gartner, Inc.
- Small and Medium Business revenue was $3.5 billion, up 19 percent. Operating income was $313 million, a 36 percent increase. Dell serves more than 10 million SMB customers globally and has more than 50,000 registered and certified partners in Dell’s Channel Program PartnerDirect.
- Consumer revenue was $3.2 billion, a 16-percent increase, with operating income of $17 million. Shipments increased 20 percent. The need for on-line access anywhere anytime helped increase mobility revenue by 26 percent.
Michael Dell, chairman of the board and chief executive officer: “Our strategy and the significant investments we’re making to enhance our capabilities are providing more of the standards-based, flexible solutions that provide customers the highest value. These efforts are driving renewed Dell growth.”
Brian Gladden, chief financial officer: “This quarter was highlighted by good execution in an improving economic environment. We feel good about the growth across our commercial business as it approaches nearly $50 billion in revenues. We will continue to make investments in our enterprise solutions throughout the year.”
The company believes it is seeing the early stages of a corporate IT refresh. Commercial demand continued to build in the first quarter and Dell is optimistic the trend will continue throughout the year. Dell expects seasonal improvements from its state and local government, consumer and education businesses in the second quarter. But, the second quarter and the first part of the third quarter typically experience slower demand from larger commercial customers in the U.S. and Europe. Overall, Dell expects a normal, seasonal sequential demand pick-up in the low single digits in its second quarter. In addition, the company expects some components to remain in tight supply for the next couple quarters and some volatility in global currencies.
Dell Inc. (NASDAQ: DELL) listens to customers and delivers worldwide innovative technology, business solutions and services they trust and value. For more information, visit www.dell.com. To hear a replay of the first-quarter analyst call with Michael Dell, chairman and CEO, Brian Gladden, CFO, and Brad Anderson, senior vice president, enterprise product group, go to www.dell.com/investors. To communicate directly with Dell, go to www.dell.com/dellshares.
Non-GAAP Financial Measures
This press release includes information about non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share (collectively the “non-GAAP financial measures”), which are not measurements of financial performance prepared in accordance with U.S. generally accepted accounting principles. In the following tables, Dell has provided a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure under the heading “Reconciliation of Non-GAAP Financial Measures” and has presented a detailed discussion of its reasons for including the non-GAAP financial measures and the limitations associated with those measures under the heading “Use of Non-GAAP Financial Measures.” Dell encourages investors to review the reconciliation and the non-GAAP discussion in conjunction with Dell’s presentation of these non-GAAP financial measures.
Statements in this press release that relate to future results and events (including statements about Dell’s future financial and operating performance, expected component pricing, global currency volatility and anticipated customer demand) are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are 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: weak global economic conditions and instability in financial markets; weak economic conditions and additional regulation affecting Dell’s financial services activities; intense competition; Dell’s cost-cutting measures; Dell’s ability to effectively manage periodic product and services transitions; Dell’s ability to effectively manage the growth of its distribution capabilities and add to its product and services offerings; Dell’s ability to achieve favorable pricing from its vendors; Dell’s reliance on third-party suppliers for product components, including reliance on several single-sourced or limited-sourced suppliers; disruptions in component or product availability; successful implementation of Dell’s acquisition strategy; Dell’s ability to generate substantial non-U.S. net revenue; Dell’s product, customer, and geographic sales mix, and seasonal sales trends; Dell’s ability to access the capital markets; loss of government contracts; customer terminations of or pricing changes in services contracts, or Dell’s failure to perform as it anticipates at the time it enters into services contracts; Dell’s ability to hedge effectively its exposure to fluctuations in foreign currency exchange rates and interest rates; counterparty default; unfavorable results of legal proceedings; Dell’s ability to obtain licenses to intellectual property developed by others on commercially reasonable and competitive terms; expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other compliance matters; Dell’s ability to maintain strong internal controls; changing environmental and safety laws; the effect of armed hostilities, terrorism, natural disasters, and public health issues; information technology and manufacturing infrastructure disruptions or breaches of data security; Dell’s ability to attract, retain, and motivate key personnel; and other risks and uncertainties discussed in Dell’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for its fiscal year ended January 29, 2010. Dell assumes no obligation to update its forward-looking statements.
Consolidated statements of income, financial position and cash flows and other financial data follow.
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