Dell today reported results for its third quarter of fiscal year 2008, with revenue up nine percent year-over-year to a record $15.6 billion, operating income up 13 percent to $829 million and earnings per share of $0.34, a 26 percent increase over the prior year. Cash from operations totaled $1 billion, while cash and marketable securities at the end of the quarter were $14.6 billion. The company plans to resume its share repurchase program in early December.
"We embarked this year on a long-term strategy to re-ignite growth and our Q3 results indicate we're making solid progress through investments in five key business priorities - consumer, emerging countries, notebooks, enterprise and small/medium business," said Michael Dell, chairman and CEO. "Initiatives to simplify IT will drive innovation across all industries, creating new value for customers and shareholders. For consumers we will continue to launch products that set the bar for design, personalization, and price performance - and we will make them available in more places than ever before."
Please find the chart of the third quarter results FY 2008 enclosed.
Profitability
Operating profit benefited from strength in mobility, solid demand in enterprise products and a continued favorable component-cost environment. These benefits were largely offset by costs the company is incurring as it restructures to improve productivity and execution, reduce headcount where appropriate, and invest in infrastructure and key growth priorities. For example, the company incurred $50 million, or $0.02 per share, related to employee reductions and asset disposals. In addition, the company incurred $28 million, or $0.01 per share related to the Audit Committee investigation which was concluded during the quarter and other related costs. Earnings for the quarter were positively impacted by an adjustment of $45 million, or $0.02 per share, to lower the company's effective tax rate for the year primarily because of a larger-than-expected mix of profits from outside the U.S.
"Our strong cash flow in the quarter demonstrates we are taking the right actions to create value. We are committed to a growth strategy that includes acquisitions as well as a long-term share repurchase plan, as we transition cash and investments to lower levels while retaining financial flexibility," said Don Carty, vice chairman and CFO, Dell.
Regional and Product Highlights
Revenue for the Americas Business, which includes corporate and public customers in the U.S., as well as Americas International, was up seven percent. The company maintained its No. 1 position in the U.S. commercial segment, with 34 percent of all units shipped (1). Americas International, which includes Latin America and Canada, had revenue growth of 19 percent year-over-year with 45 percent growth in Brazil. In addition, a Forrester Research survey (2) released earlier this month called Dell "clearly the No. 1 enterprise desktop and laptop supplier" to North American and European enterprises. The survey of 565 PC decision makers also showed that Dell in Q3 held "its sizable lead over the second-closest competitor" across the regions and company sizes in both product segments.
In Asia-Pacific and Japan, where the company is actively expanding its presence, revenue in the quarter grew by 18 percent on a 20 percent increase in units. Highlights in the region include India and China where revenue grew 47 percent and 22 percent, respectively.
Revenue increased 14 percent and shipments were up 13 percent in Europe, Middle East and Africa (EMEA). Revenue for servers and storage in the region were up 15 percent and 13 percent, respectively.
Sales outside the United States were up 16 percent and represented 46 percent of the company's overall revenue, reflecting continued strength in emerging countries.
Globally, revenue from mobility products increased 19 percent on a 25 percent increase in units. Revenue from both servers and storage grew eight percent and shipments of servers increased seven percent. Enhanced services revenue grew seven percent to $1.4 billion. Desktop PC revenue declined one percent as the industry continues to shift towards mobility. Software and peripherals revenue posted an increase of 11 percent.
Key Business Priorities
- Consumer: While revenue for Dell's U.S. Consumer business declined six percent, the business segment made strong progress against key initiatives, including new product design, channels, product personalization and mobility. Consumers will be able to buy Dell products in nearly 10,000 stores including Gome, China's largest consumer electronics retailer, and Staples' 1,400 stores across the U.S. During the quarter, Dell closed the acquisition of ZING Systems Inc., a consumer technology and services company focused on always-connected audio and entertainment devices.
- Emerging Countries: China, Brazil and India registered strong unit growth of 26, 30 and 42 percent, respectively. Combined Brazil, Russia, India and China (BRIC) revenue growth during the quarter was 32 percent. The company plans to continue its initiative of tailoring solutions to meet specific regional needs, enhancing partner relationships to provide customer choice and flexibility, and expansion into these and other emerging countries that represent 85 percent of the world's population.
- Notebooks: Notebooks are expected to grow at six times the rate of desktop systems for the next several years, and Dell plans to increase the speed with which it introduces new products, while lowering costs and tailoring mobile devices for specific customer segments. The Dell XPS M1330 notebook was labeled a "dream machine" in Time Magazine's Best Inventions of 2007 issue earlier this month.
- Enterprise: Dell unveiled multiple products and marketing initiatives to help customers simplify IT. These included new virtualization technologies that embed Citrix's XenServer on future PowerEdge servers, allowing customers to install and manage virtual machines almost immediately upon start up. On Demand Desktop Streaming will simplify desktop administration and management by combining all the benefits of traditional thin clients with the performance of standard desktops. Dell also completed the acquisition of Silverback Technologies, growing its Software As A Service (SaaS) IT monitoring and management capabilities.
- Small/Medium Business: New products for the SMB market included the PowerVault MD3000i which simplifies storage consolidation. In this, the fastest growing segment of the storage market - iSCSI, Dell also announced the planned acquisition of EqualLogic.
Company Outlook
The company continues to focus on strategic priorities that will provide better value to customers while driving a more optimal balance of liquidity, profitability and growth. As the company executes against these priorities it will continue to incur costs as it restructures to improve productivity and execution, reduce headcount where appropriate, and invest in infrastructure and acquisitions. These actions, which the company believes are necessary to drive long-term sustainable value, may adversely impact the company's performance. In addition, the company's near term results could be adversely impacted by a slower decline in component costs and a seasonal shift in mix to U.S. consumer and international regions.
Strategy Update and Earnings Call
Dell will conduct a 90-minute conference call today, Nov. 29, at 3:30 p.m. CST, to discuss its long-term strategy and Q3 results. Mr. Dell, Mr. Carty and Steve Schuckenbrock, president of Global Services and Chief Information Officer, will provide an update focused on the company's key growth priorities.
Annual Meeting and Analyst Meeting Update
The Company's annual meeting of shareholders will be held Dec. 4, 2007, at the company's Round Rock, Texas, headquarters. The Company also plans to conduct an analyst meeting on April 2 and 3, 2008, in Round Rock, Texas.
Special Note:
Statements in this press release that relate to future results and events (including statements about future financial and operating performance) are forward-looking statements based on Dell's current expectations. Actual results and events in future periods could differ materially from those projected in these forward-looking statements because of a number of risks and uncertainties including: general economic, business and industry conditions; our ability to maintain a cost advantage over our competitors; local economic and labor conditions, political instability, unexpected regulatory changes, trade protection measures, tax laws, copyright levies and fluctuations in foreign currency exchange rates; our ability to accurately predict product, customer and geographic sales mix and seasonal sales trends; information technology and manufacturing infrastructure failures; our ability to effectively manage periodic product transitions; any additional issues or matters that may arise from the ongoing SEC investigation; our ability to successfully remediate identified internal control deficiencies; our reliance on third-party suppliers for quality product components, including reliance on several single-source or limited-source suppliers; our ability to access the capital markets; litigation and governmental investigations or proceedings arising out of or related to accounting and financial reporting matters; our acquisition of other companies; our ability to properly manage the distribution of our products and services; effective hedging of our exposure to fluctuations in foreign currency exchange rates and interest rates; obtaining licenses to intellectual property developed by others on commercially reasonable and competitive terms; our ability to attract, retain and motivate key personnel; loss of government contracts; expiration of tax holidays or favorable tax rate structures; changing environmental laws; and the effect of armed hostilities, terrorism, natural disasters and public health issues. For a discussion of those and other factors affecting Dell's business and prospects, see Dell's periodic filings with the Securities and Exchange Commission.
(1) Source: IDC Preliminary Top 10 Vendors, Worldwide PC Shipments, Third Quarter 2007 (Preliminary)
(2) Source: Forrester Research, Inc., How Enterprise Buyers Rate Their PC Suppliers And What It Means For Future Purchases. The State Of The Enterprise PC - 2007 And Beyond. Ben Gray, November 12, 2007
"We embarked this year on a long-term strategy to re-ignite growth and our Q3 results indicate we're making solid progress through investments in five key business priorities - consumer, emerging countries, notebooks, enterprise and small/medium business," said Michael Dell, chairman and CEO. "Initiatives to simplify IT will drive innovation across all industries, creating new value for customers and shareholders. For consumers we will continue to launch products that set the bar for design, personalization, and price performance - and we will make them available in more places than ever before."
Please find the chart of the third quarter results FY 2008 enclosed.
Profitability
Operating profit benefited from strength in mobility, solid demand in enterprise products and a continued favorable component-cost environment. These benefits were largely offset by costs the company is incurring as it restructures to improve productivity and execution, reduce headcount where appropriate, and invest in infrastructure and key growth priorities. For example, the company incurred $50 million, or $0.02 per share, related to employee reductions and asset disposals. In addition, the company incurred $28 million, or $0.01 per share related to the Audit Committee investigation which was concluded during the quarter and other related costs. Earnings for the quarter were positively impacted by an adjustment of $45 million, or $0.02 per share, to lower the company's effective tax rate for the year primarily because of a larger-than-expected mix of profits from outside the U.S.
"Our strong cash flow in the quarter demonstrates we are taking the right actions to create value. We are committed to a growth strategy that includes acquisitions as well as a long-term share repurchase plan, as we transition cash and investments to lower levels while retaining financial flexibility," said Don Carty, vice chairman and CFO, Dell.
Regional and Product Highlights
Revenue for the Americas Business, which includes corporate and public customers in the U.S., as well as Americas International, was up seven percent. The company maintained its No. 1 position in the U.S. commercial segment, with 34 percent of all units shipped (1). Americas International, which includes Latin America and Canada, had revenue growth of 19 percent year-over-year with 45 percent growth in Brazil. In addition, a Forrester Research survey (2) released earlier this month called Dell "clearly the No. 1 enterprise desktop and laptop supplier" to North American and European enterprises. The survey of 565 PC decision makers also showed that Dell in Q3 held "its sizable lead over the second-closest competitor" across the regions and company sizes in both product segments.
In Asia-Pacific and Japan, where the company is actively expanding its presence, revenue in the quarter grew by 18 percent on a 20 percent increase in units. Highlights in the region include India and China where revenue grew 47 percent and 22 percent, respectively.
Revenue increased 14 percent and shipments were up 13 percent in Europe, Middle East and Africa (EMEA). Revenue for servers and storage in the region were up 15 percent and 13 percent, respectively.
Sales outside the United States were up 16 percent and represented 46 percent of the company's overall revenue, reflecting continued strength in emerging countries.
Globally, revenue from mobility products increased 19 percent on a 25 percent increase in units. Revenue from both servers and storage grew eight percent and shipments of servers increased seven percent. Enhanced services revenue grew seven percent to $1.4 billion. Desktop PC revenue declined one percent as the industry continues to shift towards mobility. Software and peripherals revenue posted an increase of 11 percent.
Key Business Priorities
- Consumer: While revenue for Dell's U.S. Consumer business declined six percent, the business segment made strong progress against key initiatives, including new product design, channels, product personalization and mobility. Consumers will be able to buy Dell products in nearly 10,000 stores including Gome, China's largest consumer electronics retailer, and Staples' 1,400 stores across the U.S. During the quarter, Dell closed the acquisition of ZING Systems Inc., a consumer technology and services company focused on always-connected audio and entertainment devices.
- Emerging Countries: China, Brazil and India registered strong unit growth of 26, 30 and 42 percent, respectively. Combined Brazil, Russia, India and China (BRIC) revenue growth during the quarter was 32 percent. The company plans to continue its initiative of tailoring solutions to meet specific regional needs, enhancing partner relationships to provide customer choice and flexibility, and expansion into these and other emerging countries that represent 85 percent of the world's population.
- Notebooks: Notebooks are expected to grow at six times the rate of desktop systems for the next several years, and Dell plans to increase the speed with which it introduces new products, while lowering costs and tailoring mobile devices for specific customer segments. The Dell XPS M1330 notebook was labeled a "dream machine" in Time Magazine's Best Inventions of 2007 issue earlier this month.
- Enterprise: Dell unveiled multiple products and marketing initiatives to help customers simplify IT. These included new virtualization technologies that embed Citrix's XenServer on future PowerEdge servers, allowing customers to install and manage virtual machines almost immediately upon start up. On Demand Desktop Streaming will simplify desktop administration and management by combining all the benefits of traditional thin clients with the performance of standard desktops. Dell also completed the acquisition of Silverback Technologies, growing its Software As A Service (SaaS) IT monitoring and management capabilities.
- Small/Medium Business: New products for the SMB market included the PowerVault MD3000i which simplifies storage consolidation. In this, the fastest growing segment of the storage market - iSCSI, Dell also announced the planned acquisition of EqualLogic.
Company Outlook
The company continues to focus on strategic priorities that will provide better value to customers while driving a more optimal balance of liquidity, profitability and growth. As the company executes against these priorities it will continue to incur costs as it restructures to improve productivity and execution, reduce headcount where appropriate, and invest in infrastructure and acquisitions. These actions, which the company believes are necessary to drive long-term sustainable value, may adversely impact the company's performance. In addition, the company's near term results could be adversely impacted by a slower decline in component costs and a seasonal shift in mix to U.S. consumer and international regions.
Strategy Update and Earnings Call
Dell will conduct a 90-minute conference call today, Nov. 29, at 3:30 p.m. CST, to discuss its long-term strategy and Q3 results. Mr. Dell, Mr. Carty and Steve Schuckenbrock, president of Global Services and Chief Information Officer, will provide an update focused on the company's key growth priorities.
Annual Meeting and Analyst Meeting Update
The Company's annual meeting of shareholders will be held Dec. 4, 2007, at the company's Round Rock, Texas, headquarters. The Company also plans to conduct an analyst meeting on April 2 and 3, 2008, in Round Rock, Texas.
Special Note:
Statements in this press release that relate to future results and events (including statements about future financial and operating performance) are forward-looking statements based on Dell's current expectations. Actual results and events in future periods could differ materially from those projected in these forward-looking statements because of a number of risks and uncertainties including: general economic, business and industry conditions; our ability to maintain a cost advantage over our competitors; local economic and labor conditions, political instability, unexpected regulatory changes, trade protection measures, tax laws, copyright levies and fluctuations in foreign currency exchange rates; our ability to accurately predict product, customer and geographic sales mix and seasonal sales trends; information technology and manufacturing infrastructure failures; our ability to effectively manage periodic product transitions; any additional issues or matters that may arise from the ongoing SEC investigation; our ability to successfully remediate identified internal control deficiencies; our reliance on third-party suppliers for quality product components, including reliance on several single-source or limited-source suppliers; our ability to access the capital markets; litigation and governmental investigations or proceedings arising out of or related to accounting and financial reporting matters; our acquisition of other companies; our ability to properly manage the distribution of our products and services; effective hedging of our exposure to fluctuations in foreign currency exchange rates and interest rates; obtaining licenses to intellectual property developed by others on commercially reasonable and competitive terms; our ability to attract, retain and motivate key personnel; loss of government contracts; expiration of tax holidays or favorable tax rate structures; changing environmental laws; and the effect of armed hostilities, terrorism, natural disasters and public health issues. For a discussion of those and other factors affecting Dell's business and prospects, see Dell's periodic filings with the Securities and Exchange Commission.
(1) Source: IDC Preliminary Top 10 Vendors, Worldwide PC Shipments, Third Quarter 2007 (Preliminary)
(2) Source: Forrester Research, Inc., How Enterprise Buyers Rate Their PC Suppliers And What It Means For Future Purchases. The State Of The Enterprise PC - 2007 And Beyond. Ben Gray, November 12, 2007
