Dell Increases Revenue and Earnings, Lowers Operating Expenses

Dell today reported record fiscal first quarter revenue of $16 billion, a 9 percent year-over-year increase, and earnings of $0.38 cents per share, a 12 percent increase. The results were driven by better-than-industry growth of commercial and consumer products and services, and lower operating expense as a percent of revenue.

Product shipments in the quarter increased 22 percent, with servers growing three times the industry rate at 21 percent. Storage revenue increased 15 percent and enhanced services revenue was up 13 percent. Notebook unit growth, a Dell strategic priority, rose sharply at 43 percent and 1.2 times the industry growth rate. Consumer units grew at more than two times the industry rate and the company increased its global share by 1.2 points to 8.8 percent during the quarter.

“We are executing on all points of our strategy to drive growth in every product category and in every part of the world,” said Michael Dell, chairman and CEO. “These results are early signs of our progress against our five strategic priorities. Through a continued focus, we expect to continue growing faster than the industry and increase our revenue, profitability and cash flow for greater shareholder value.”

Financial Report

Earnings per share in the quarter were affected by the following items:

$106 million in expense, or four cents per share, related to the realignment of our business, including severance costs and facility closures; $26 million, or one cent per share, in amortization expense of purchased intangible assets; $19 million in expense, or one cent per share, in investigation related costs; A $42 million increase in financing and other income, or two cents per share, related to an error in currency exchange rates from prior periods; A $46 million, or two cents per share, reversal in the provision for employee bonuses for fiscal 2008; and, A reduction in a litigation reserve related to a favorable ruling in a patent case of $55 million, or two cents per share.

Dell’s headcount has been reduced by 7,000 in the past year – including a reduction of about 3,700 in the first quarter – or 8 percent before the impact of acquisitions. Dell has added about 2,700 employees through acquisitions, making the net reduction for the company about 5 percent.

Operating expenses were 12.9 percent of revenue for the quarter. Cash flow from operations was $143 million and impacted by lower payables and tax and bonus payments. The company still expects to generate cash flow from operations in excess of net income on an annualized basis. Dell ended the quarter with $9.8 billion in cash and investments and weighted average shares were 2.04 billion.

In the quarter, Dell issued $1.5 billion in private placement and medium- and long-term notes to be used for general corporate purposes. Dell spent more than $1 billion to repurchase 52 million shares of stock and plans to spend at least $1 billion on share repurchase in the second quarter.

Strategic Priority Highlights

Global Consumer: On improved profitability, revenue grew 20 percent driven by a 47 percent increase in shipments. Dell grew units at more than two times the rate of the industry and increased its global share by 1.2 points to 8.8 percent. In addition to its online and telephone sales channels, Dell expanded its global retail presence, adding Suning in China and Costco in the U.S. to reach more than 13,000 retail locations worldwide. Enterprise: Server revenues were up 4 percent on a 21 percent increase in units, Dell’s fastest unit growth in more than two years and three times the rate of the industry. The company gained 1.5 points of share in the quarter. Storage revenue jumped 15 percent driven by strong growth from Dell’s PowerVault direct attached products and a full quarter of EqualLogic offerings. Based on company estimates, Dell again took share worldwide in the first quarter. Enhanced services revenue was up 13 percent aided by the first full quarter of the new ProSupport solutions. A leading indicator of services growth – the deferred services revenue balance – grew 23 percent to $5.4 billion. Dell’s Cloud-Computing service and design model is powering about half of the fastest growing Chinese internet companies as well as the largest portal in China. With launch of the Dell EqualLogic PS5000 series IP SANs and the Dell/EMC AX4 and 5i SANs, Dell extended its position as the No. 1 provider worldwide of iSCSI SAN solutions. Notebooks: Notebook units grew 43 percent year-over-year with revenue growth of 22 percent. In the quarter, Dell released its first fully ruggedized laptop, the Latitude XFR D630. In Global Consumer, notebook units increased 78 percent and made up 60 percent of the product mix. Small and Medium Business: Dell announced a redesigned Vostro laptop line for small businesses, including the 13.3-inch Vostro 1310 and the 15.4 inch Vostro 1510. These products are further expansion of Dell’s products designed specifically for small business customers, including servers, storage and services. Emerging Countries: BRIC plus the 10 targeted countries in Dell’s emerging countries priority accelerated revenue 47 percent. The company launched the Dell 500 notebook, designed specifically for the needs of emerging countries, which it is shipping to great demand in China and India. The Partner Direct program was launched in Europe and APJ in the quarter.