Dell reports stagnant Q3 revenue, CFO says prices may increase

Dell reported its third-quarter earnings on Tuesday, noting that its revenue of $15.4 billion was flat compared to the same period last year. GAAP earnings came in at $0.49 per share, up 17% from the same quarter in 2010. Revenue from Dell’s enterprise solutions and services branch was an all-time high $4.7 billion; sales of servers, storage, networking and services jumped 8% from the same period last year. Dell’s consumer unit reported $2.8 billion in revenue, down 6% from the third quarter of 2010, but the company said that its high-end XPS computers fared particularly well. In fact, revenue from its XPS consumer laptop family increased 207% from last year. Read on for more.

Dell warned that the flooding in Thailand, which has resulted in shortages of hard drives from Western Digital and Seagate, has forced the company to look to the “lower end of the range of its revenue outlook” of 1-5% growth for the year. “To the that extent we see higher [hard drive] prices we’ll also see some offsets in other components and we’re going to do everything we can to protect our customers,” Dell CFO Brian Gladden said.”But maybe in some cases we do have to raise our prices.” Read on for the full press release from Dell.

Dell Reports Strong Profitability in Third Quarter

Fiscal Year 2012 Third Quarter Financial Statements in PDF format

  • 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 at all-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 focus on higher-value opportunities, combined with an increased mix of enterprise solutions and services sales, resulted in 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 past year reflect a new Dell, one focused on 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 billion-dollar annual run rate and our earnings per share is up 86 percent over the last 12 months.”

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

“We delivered strong third-quarter results, maintaining our focus on operating income and improving our mix of higher-value enterprise solutions,” said Brian Gladden, Dell chief financial officer. “Consistent with our strategy and the investments we have made, we continued to see 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 in the quarter was $15.4 billion, flat compared with the same quarter last year.
  • GAAP earnings per share was 49 cents, up 17 percent; non-GAAP EPS was 54 cents, up 20 percent.
  • GAAPoperating 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 last four quarters. Dell ended the quarter with $16 billion in cash and investments and repurchased $600 million in stock in the quarter. For the year, Dell has spent $2.18 billion to purchase 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%

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, certain settlement costs and acquisition-related charges. All comparisons in this press release are year over year unless otherwise noted.

Strategic Highlights:

  • Enterprise solutions and services revenue was $4.7 billion in 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 working with customers to provide mission-critical services and solutions around 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 new services contracts signed for the past 12 months 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 an increase in services revenue of 7 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 invest in our solutions to reduce 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 higher-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 nearly 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 in 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 greatest 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 company remains committed to its strategy and is on track to exceed its guidance of 17 to 23 percent full fiscal-year operating income growth.

Given the uncertain macroeconomic environment and complexity in working through the industry-wide hard drive issue, the company is trending to the lower end of the range of its revenue outlook of 1 to 5-percent full fiscal-year growth.

Results through Q3 show that Dell is on track for another outstanding year. The company 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.

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