Fiscal Year 2008 in Review
Over the last 10 years your company grew revenue from $12 billion to $61 billion – a remarkable achievement by any count. In fact, in terms of organic growth we stand apart as the fastest-growing technology company in history. But it is also fair to say that as we got to the end of that 10-year period, our strategy wasn’t working as well as it had previously. Moreover, as we evolved we lost focus and allowed our cost structure to become non-competitive.
As I returned as your CEO just more than a year ago we undertook a thorough process to reevaluate every element of our business. We listened hard to our customers, employees and partners. And we began a significant evolution that is delivering positive results.
Last year, we generated $61 billion in revenue and grew our earnings per share by 15 percent to $1.31. At the end of the year, we were again the No. 1 supplier of personal computer systems in the United States and the No. 2 supplier worldwide. Unit shipments were up nearly 19 percent in FY08 Q4, and according to industry estimates we have begun the current year growing faster than the industry.
We continued to maintain strong liquidity with cash flows from operations of $3.9 billion, and we believe our ability to generate cash flow from operations on an annual basis will continue to be solid. During fiscal 2008 we invested $4 billion on share repurchases and a net $2.2 billion on strategic acquisitions. We ended fiscal 2008 with $9.5 billion in cash and investments compared with $12.4 billion at the end of fiscal 2007.We are committed to a long-term share repurchase program as part of an overall capital allocation plan to support growth and to return value to shareholders. In December 2007, our Board of Directors approved an additional $10 billion for share repurchases.
A Focus on Competitiveness
Our strategy is focused on competitiveness and growth. To achieve the former, we comprehensively reviewed costs across all processes and organizations, which resulted in actions to reduce:
- product and procurement costs by more closely matching our product design to customer segments and eliminating embedded costs associated with features not valued by our customers;
- operating expenses, including a reduction of global employee headcount by 3,200 on a net basis during fiscal 2008 and a commitment to reduce headcount by at least 8,900 overall; and,
- manufacturing and logistics costs by optimizing our global manufacturing network.
With these actions, we expect to achieve annualized savings of approximately $3 billion over the next three years, strengthening our competitive position and profitability.
And as I write this, in our first quarter of fiscal 2009 we’ve seen meaningful signs of progress in the form of growth across all our key financial metrics, including revenue, operating income and earnings per share.
Through the honest assessment of our business last year, we uncovered several opportunities for improvement. For instance, we were not performing as strongly as our competitors in some of the fastest growing product categories and global geographies, and so our share was declining. Since then we have introduced new product families, including best-in-class products for each segment and unique products for Emerging Countries.
I am excited about the efforts we have in motion to transform our company. We are placing a significant priority on operating expenses and costs, which will give us a better ability to access the enormous opportunities that we see ahead. Improvements in competitiveness will improve profitability and increase our return to shareholders. From this position we will also continue to reinvest in growth in a focused and disciplined manner.
At the start of fiscal 2008 we established five growth priorities: Consumer, Enterprise, Notebooks, Small and Medium Businesses and Emerging Countries. The solid progress we made against all five is a credit to the dedication of our team. As we continue on this path, we will measure our progress by our ability to meet our targets, including growing faster than the industry, improving profitability and increasing earnings per share and cash flow.
Against a backdrop of intense competitive pressure, particularly in the lower-priced desktops and notebooks, we evolved our Consumer business model and have entered into a number of retail partnerships worldwide to complement and extend our existing direct business. By the end of fiscal 2008, Dell was available in more than 12,000 retail outlets, giving customers more choice than ever. We also introduced a number of new products to appeal to consumers, recognizing the increasing importance of product personalization, from product appearance to the ability to see and buy products wherever customers want.
The introduction this year of the XPS One, perhaps the most beautiful Dell ever, reflects the sea of change in design we’re bringing customers. This all-in-one premium consumer electronics system offers the best in style, entertainment, design and features. And, our M1330 and M1530 notebooks launched to significant industry acclaim.
By the fourth quarter of fiscal 2008, our U.S. Consumer business began to improve and posted revenue growth of 12 percent over the fourth quarter of fiscal 2007, reflecting initial success due to the changes we have made to reignite growth.
In the coming year we expect to improve our global Consumer sales execution and channel coverage, targeting sales force investments in rapidly growing countries and marketing. We are also designing new, innovative products with faster development cycles and industry-leading features.
Dell is uniquely positioned to reduce the complexity of enterprise IT, and in doing so, be at the forefront of many of the most important trends in our industry. In fiscal 2008 there were perhaps no better examples than virtualization, iSCSI storage and blade servers. We established industry-leading positions in these rapidly growing technologies, providing improved power and cooling, increased data center efficiency and a lower operating cost than our competitors.
Last year we were again No. 1 in the U.S. in server units shipped, and No. 2 worldwide. This success was aided by the launch of our 10G blade servers, the most energy-efficient blade server available. Our PowerEdge servers are ranked No. 1 in server performance for database and virtualization, energy efficiency and price in benchmark testing. And as I meet with CIOs around the world, they consistently tell me that these are their top priorities.
We made bold moves to extend our leadership in Enterprise storage with the acquisition of EqualLogic, an industry leader in iSCSI storage area networks, which enables us to provide the optimal storage architecture for a virtualized environment. The iSCSI opportunity is exceptional, with the sector expected to grow more than 125 percent annually over the next five years.
Customers turn to Dell for products that deliver flexibility, value, configurability, access to innovation and control. In fiscal 2008 we unveiled our strategy and made key acquisitions to do the same for IT services – a $380 billion opportunity. Configurable Managed Services are the future, giving customers access to the best innovations in the world through remote infrastructure management and software-as-a-service offerings.
With the capabilities gained from Silverback, ASAP Software Express and Everdream, we are building out a powerful mix of enterprise-service offerings. Our acquisition of ASAP, a leading software solutions and licensing services provider, enabled Dell to offer customers products from more than 2,000 software publishers, and to better manage those products in a virtualized environment. ProSupport distills 10 service offerings to two customizable packages from our commercial product and solutions portfolio. This new services model combines disruptive technologies with our core strengths to provide customers convenient and affordable enterprise-class support and monitoring capability.
Just as we are providing customers more products and services to choose from, we are also giving them more choices in how they can buy from us. Our first integrated global channel program, called PartnerDirect, brings our partner initiatives under one umbrella. We now have a more flexible engagement model with our partners, with whom we do more than $10 billion in business a year.
The creation of Dell’s Data Center Solutions (DCS) division this year is another example of how we’re simplifying IT. DCS delivers our Cloud-Computing service and design model, allowing customers with hyper-scale computing to optimize their IT infrastructure based on their specific needs. Dell servers today power three of the top-five search engines in the United States and the largest Internet portal in China. Beyond the providers of Internet search, social networking and new media, the data-intensive customers that use our cloud-computing solution include major providers of goods and services over the Internet, financial-services organizations, government agencies, university and laboratory environments, and upstream petroleum producers.
Our teams brought exciting new designs to our notebook families this year, including Inspiron color laptops and the new Vostro product family. For commercial customers, we launched the Latitude XT, one of the thinnest and lightest 12.1-inch convertible tablets available. We also refreshed our Precision line of mobile workstations, which are intended for professional users who run sophisticated applications, and our Alienware line of laptops, our highest-performance gaming systems.
I’m proud of the more than 150 awards we received for Latitude, Vostro, Inspiron and XPS notebooks last year, a testament to our team’s work to improve design. For example, our high-end XPS systems continue to earn praise, including multiple mentions in PC World’s “Best Products of 2007,” PC Magazine’s editor’s choice awards and the “Best of CES Innovations 2007.”
To do this, we are tailoring our products, services and engagement to meet the unique preferences and needs of customers. In China, we now develop, design, manufacture and sell computer systems and provide related services in-country. It is no coincidence that last year we moved into the No. 2 position in commercial PCs and No. 1 in servers in China.
Small and Medium Business
We’ve taken significant steps in the past year to make business growth a reality for more Small and Medium Businesses. In July 2007 we introduced the Vostro family of desktops and notebooks, which is designed to provide the technology and solutions to suit the specific needs of this growing customer set. We also improved the storage solutions we offer to small organizations. And we’re helping them grow their business through new services that accelerate the deployment of small-scale datacenter and storage solutions.
We will maintain an intense focus growth through these five priorities through 2009 and a disciplined approach to restoring our competitiveness.
Fiscal 2008 also marks the year in which we challenged Dell – and the entire industry – to ensure that our advantages are sustainable. This goal is extremely compatible with improving our competitiveness and growth. We became the first major computer manufacturer to commit to neutralizing the carbon impact of its worldwide operations – a goal we are on track to meet by the end of calendar 2008.
To make it easy for customers to offset the carbon impact of the electricity generation required to power their computer equipment, we launched “Plant a Tree for Me” for consumers, and “Plant a Forest for Me” for enterprises, in partnership with The Conservation Fund and Carbonfund.org.
Our customers are also seeking a sustainable green advantage from Dell. Today we offer the broadest family of green products in the industry. And we are setting new records for power efficiency. For example, Dell M-Series blade servers deliver up to 25 percent better performance per watt than the leading competitor. We remain the only company in our industry offering consumers free product recycling globally. And we continue to offer customers affordable, responsible and convenient recycling options for their used IT equipment, protecting them against data loss and environmental liability.
Our actions reflect an ambitious long-term goal to be the greenest technology company on the planet. We continue to make significant progress toward this goal, and our work is already delivering results.
Since our inception, Dell has increased the availability of technology for millions of businesses and enabled millions of people to get online for the first time. Now, more than ever, we are advancing this mission through new ways of listening to and reaching customers, and by expanding and customizing our product and service portfolios.
Dell is evolving at one of the most exciting points in our industry’s history. Our team has a clear focus on what we must do to increase our growth and competitiveness. We are committed to sustaining and building on the gains we made in fiscal 2008.
Thanks to you -- our customers, partners, shareholders and employees -- for the continuous inspiration you provide us. Visit us at DellShares, our investor relations blog.
Chairman and CEO