Dell Cautiously Enters New Era with Weak Q4 Earnings

With the prospect of substantial financial corrections still looming over the company, Dell Computer hasn't been able to present its usual, detailed comparisons of present performance compared to past. So analysts late yesterday were given a preliminary fourth-quarter fiscal year 2007 earnings report, on top of a recently issued third-quarter report that still remains preliminary. Those who were able to do the math for themselves came to a daunting conclusion: Dell's not growing.

Financially speaking, the task ahead of new Dell CEO Michael Dell - who re-assumed his old post last month - is not impossible. His company isn't exactly hemorrhaging or even bleeding cash. It's just in a low-margin business where, even in segments where sales aren't declining, profits aren't accumulating. The big task ahead of Mr. Dell is restoring public trust in his company.

But for yesterday, the focus was on the numbers, which aren't grim but aren't redeeming either. Assuming Dell's preliminary numbers are close to accurate, the company took in one tenth of one percent more in revenue than in the previous quarter, with $14.4 billion gross. But gross margin rose by just 0.6% to 17.1% of revenue, keeping earnings low at $673 million - $4 million less than the previous quarter.

Analysts compared this last holiday quarter to fiscal 2006, when Dell enjoyed a nice kick in the right direction. In February 2006, the company reported over a billion in income on $15.2 billion in revenue, on 17.8% gross margin. That quarter looked even at the time to be an aberration, with non-holiday quarters at around $650 million - about where they are now.

Nonetheless, the word on the street looked bad: A 33% annual drop in quarterly profits for Dell - never mind the fact that Q4 FY 2006 was so stunning.

There were really no stellar performers among Dell's market segments, although the company did credit new AMD-powered computer lines for helping to help stem what might otherwise have been a very negative tide. While revenues from desktop computers declined by 18% annually to $4.6 billion - and declines in desktops aren't unexpected - revenue from notebook computers declined also, by 2% to $3.8 billion, even though unit shipments in that segment rose by 2%.

Perhaps the worst part of that news was the 2% gain, which is not considered strong given the fact that notebooks constitute the fastest-growing segment of business and home computing.

In a statement yesterday, Michael Dell pleaded with investors to give his company time to find its footing again

"We won't achieve our goals overnight, but we will achieve our goals," he wrote. "We will be known again for strong operating and financial performance and a great experience for our customers. But it will take time to realize the future benefits of the improvements we are making today."

Given that Dell is busy working out a few details regarding its numbers, it may just have to get back to us later with regard to how much time that might take.