Dell reports Q3 earnings, enterprise division rakes in record $4.7 billion

Date : 11/15/2011

Earnings per share of $0.49 (GAAP) and $0.54 (non-GAAP) up 17 and 20 percent, respectively; Operating Income up 12 percent (GAAP); up 10 percent (non-GAAP)
Enterprise solutions and services revenue in any respect-time high of $4.7 billion
Cash flow from operations for the quarter was $851 million and $5.2 billion for the past four quarters

Dell’s continued strategic cope with higher-value opportunities, combined with an increased mixture of enterprise solutions and services sales, led to increased profitability on revenue of $15.4 billion in its third quarter, flat compared with revenue a year ago.

“Our results this quarter and over the last year reflect a brand new Dell, one fascinated with providing our customers productivity-enhancing solutions either developed organically or acquired,” said Michael Dell, chairman and CEO. “We’re now investing in research and development activities at almost a thousand million-dollar annual run rate and our earnings per share is up 86 percent during the last year.”

Revenue for Dell’s enterprise solutions and services business – including sales of servers, storage, networking, and services – increased 8 percent over a similar quarter last year to $4.7 billion, an all-time high. Because the revenue mix steadily shifts more to the upper-value enterprise portfolio, Dell is delivering on its commitment to enhance profitability, with operating income up 12 percent for the quarter and at 7.6 percent of revenue for the fiscal year thus far.

“We delivered strong third-quarter results, maintaining our specialise in operating income and improving our mixture of higher-value enterprise solutions,” said Brian Gladden, Dell chief financial officer. “In line with our strategy and the investments we have now made, we continued to look excellent momentum in our enterprise business, with double-digit revenue growth in services, servers and networking, and in key growth countries, despite some macroeconomic uncertainty.”

Results:

Revenue within the quarter was $15.4 billion, flat compared with the identical quarter last year.
GAAP earnings per share was 49 cents, up 17 percent; non-GAAP EPS was 54 cents, up 20 percent.
GAAP operating income was $1.1 billion, or 7.4 percent of revenue. Non-GAAP operating income was $1.3 billion, or 8.4 percent of revenue.
Cash flow from operations was $851 million for the quarter and $5.2 billion over the past four quarters. Dell ended the quarter with $16 billion in cash and investments and repurchased $600 million in stock within the quarter. For the year, Dell has spent $2.18 billion to buy 142 million shares of Dell stock.

Fiscal-Year 2012 Third Quarter and Year-To-Date Highlights

Third Quarter Fiscal Year-to-Date

(in millions) FY12 FY11 Change FY12 FY11 Change
Revenue $15,365 $15,394 0% $46,040 $45,802 1%

Operating Income (GAAP) $1,142 $1,024 12% $3,500 $2,288 53%
Net Income (GAAP) $893 $822 9% $2,728 $1,708 60%
EPS (GAAP) $0.49 $0.42 17% $1.46 $0.87 68%

Operating Income (non-GAAP) $1,288 $1,167 10% $3,992 $2,863 39%
Net Income (non-GAAP) $983 $875 12% $3,039 $2,088 46%
EPS (non-GAAP $0.54 $0.45 20% $1.62 $1.06 53%

Details about Dell’s use of non-GAAP financial information is supplied 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, certain settlement costs and acquisition-related charges. All comparisons on this press release are year over year unless otherwise noted.

Strategic Highlights:

Enterprise solutions and services revenue was $4.7 billion within the quarter and represented 31 percent of Dell’s revenue.
Server and networking revenue increased 13 percent year over year, driven by continued momentum in server virtualization. Dell is operating with customers to supply mission-critical services and solutions round the server, creating competitive differentiation, richer configurations and stronger profitability.
Dell-branded storage revenue grew 23 percent year over year, driven by demand for EqualLogic and Compellent technology.
Dell Services revenue grew 10 percent to $2.1 billion and now represents 14 percent of Dell’s business. Dell’s total value of recent services contracts signed for the past yr is $1.9 billion. Services backlog is now $15.5 billion, up 11 percent from a year ago.

Business Units and Regions:

Large Enterprise had $4.5 billion of revenue, up 4 percent from a year ago on a 19 percent increase in revenue for servers and networking and a 14 percent increase in revenue for services. Enterprise solutions and services revenue was $1.9 billion. Operating income was $441 million, or 9.8 percent of revenue.
Public had $4.4 billion of revenue, down 2 percent from a year ago, and including a rise in services revenue of seven percent. Operating income was $463 million or 10.6 percent of revenue. Enterprise solutions and services revenue was $1.6 billion. Spending was slow in U.S. federal and Western Europe. Customers continue to take a position in our solutions to attenuate spending and increase productivity.
Small and Medium Business had revenue of $3.7 billion, up 1 percent. Operating income was $386 million or 10.4 percent of revenue. Enterprise solutions and services revenue was $1.1 billion, an all-time high, and up 18 percent, driven by a gain in servers of 18 percent; services of 23 percent, and storage of 9 percent.
Consumer revenue was $2.8 billion, a 6 percent decline. Operating income was $76 million or 2.7 percent of revenue. The migration to raised-value products has proven to be effective, with overall company revenue for the high-end XPS consumer laptop growing 207 percent. XPS revenue now accounts for almost 20 percent of Dell’s total consumer laptop business.
Internationally, revenue in growth countries – defined as those outside the U.S., Canada, Western Europe and Japan – grew 11 percent within the third quarter and is up 14 percent for the fiscal year. These geographies account for 29 percent of Dell’s revenue. Regionally, Asia Pacific and Japan had the best revenue growth at 10 percent, led by China’s 23 percent growth and Australia/New Zealand’s 13 percent increase. EMEA revenue increased 4 percent. Revenue in European growth countries increased 12 percent, led by the Czech Republic, Poland and Russia. Revenue in BRIC countries increased 14 percent.

Company Outlook:

Dell has delivered $5.3 billion in operating income on a trailing, 12-month basis, and a 44-percent increase year-over-year on a non-GAAP basis. The corporate remains committed to its strategy and is heading in the right direction to exceed its guidance of 17 to 23 percent full fiscal-year operating income growth.

Given the uncertain macroeconomic environment and complexity in working in the course of the industry-wide harddrive issue, the corporate is trending to the lower end of the diversity of its revenue outlook of one to five-percent full fiscal-year growth.

Results through Q3 show that Dell is not off course for an additional outstanding year. The corporate has made significant progress in building a more diversified and competitive set of enterprise and services-focused businesses that now represent almost 50 percent of its margin.

About Dell
Dell Inc. (NASDAQ: DELL) listens to customers and delivers innovative technology and services that give them the ability to do more. For additional information, visit www.dell.com. T he third quarter a nalyst call with Michael Dell, chairman and CEO; Brian Gladden, CFO; and Jeff Clarke, vice president, Global Operations & End User Computing Solutions, would be webcast live today at 4 p.m. CST and archived at www.dell.com/investor. To observe highlighted facts from the analyst call, follow at the Dell Investor Relations Twitter account at: http://twitter.com/dellshares or hashtag #DellEarnings. To speak directly with Dell, visit www.dell.com/dellshares.

Non-GAAP Financial Measures:

This press release includes details about non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share (collectively with non-GAAP gross margin and non-GAAP operating expenses, the “non-GAAP financial measures”), which aren’t measurements of economic performance prepared in line with U.S. generally accepted accounting principles. Within the following tables, Dell has provided a reconciliation of every historical non-GAAP financial measure to probably the most directly comparable GAAP financial measure under the heading “Reconciliation of Non-GAAP Financial Measures” and has presented an in depth discussion of its reasons for including the non-GAAP financial measures and the restrictions related to those measures under the heading “Use of Non-GAAP Financial Measures.” Dell encourages investors to study the reconciliation and the non-GAAP discussion along side Dell’s presentation of those non-GAAP financial measures.

Special Note on Forward Looking Statements:

Statements on this press release that relate to future results and events (including statements about Dell’s future financial and operating performance, trends regarding enterprise, solutions and services, Dell’s strategies and spending with regards to investments and research and development, anticipated customer demand, global macroeconomic uncertainty, geographic trends, operating expense strategies, and tough drive and other component supply, in addition to the financial guidance with respect to revenue and non-GAAP operating income) are forward-looking statements and are in line with Dell’s current expectations. Occasionally, you may identify these statements by such forward-looking words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “confidence,” “may,” “plan,” “potential,” “should,” “will” and “would,” or similar expressions. Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements as a result of some of risks, uncertainties and other factors, including: intense competition; Dell’s cost-cutting measures; Dell’s ability to effectively manage the expansion of its distribution capabilities and add to its product and services offerings; Dell’s ability to effectively manage periodic product and services transitions; weak global economic conditions and instability in financial markets; Dell’s ability to generate substantial non-U.S. net revenue; weak economic conditions and extra regulation affecting Dell’s financial services activities; Dell’s ability to realize favorable pricing from its vendors; Dell’s ability to deliver consistent quality services and products; Dell’s reliance on third-party suppliers for product components, including reliance on several single-sourced or limited-sourced suppliers; successful implementation of Dell’s acquisition strategy; Dell’s product, customer, and geographic sales mix, and seasonal sales trends; access to the capital markets by Dell or its customers; lack of government contracts; the chance of temporary suspension or debarment from contracting with U.S. federal, state and native governments due to the settlements of an SEC investigation by Dell and Dell’s Chairman and CEO; customer terminations of or pricing changes in services contracts, or Dell’s failure to accomplish because it anticipates on the time it enters into services contracts; Dell’s ability to acquire licenses to intellectual property developed by others on commercially reasonable and competitive terms; information technology and manufacturing infrastructure disruptions or breaches of knowledge security; Dell’s ability to hedge effectively its exposure to fluctuations in foreign currencies exchange rates and rates of interest; counterparty default; unfavorable result of legal proceedings; expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other compliance matters; Dell’s ability to draw, retain, and motivate key personnel; Dell’s ability to keep strong internal controls; changing environmental and safety laws; the effect of armed hostilities, terrorism, natural disasters, and public health issues; 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 Jan. 28, 2011. Particularly, Dell’s expectations with reference to revenue and non-GAAP operating income for the entire fiscal year ending Feb. 3, 2012 assume, among other matters, that there’s no significant decline in economic conditions generally or demand growth specifically, that macroeconomic uncertainties don’t materialize into significant economic difficulties, that Dell is ready to adequately address hard disk supply challenges, no significant change in product mix patterns, continued geographic customer demand trends, continued successful demand planning and forecasting, no supply chain disruptions, and no significant adverse component pricing or supply movements. 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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