Dell's Q4: 'Flat' is not a bad place to be
When former CFO Don Carty left Dell Inc. to rejoin his retirement, after having pulled one more rabbit out of his hat and perhaps saved the company, it was last May, and the first signs of the economic crisis (the collapse of the housing market) were only just now upon us. It looked as though Dell would ride a gradual wave of slow redemption, if not overall prosperity, having emerged from an accounting crisis the likes of which would have crippled almost any other US company in the public mind.
But did Carty exit at the wrong time for Dell, not knowing what lay ahead? Late this afternoon, the world's #2 PC maker revealed the answer: It's weathering the storm pretty well, thank you very much, with Michael Dell actively manning the tiller, and former GE Plastics CEO Brian Gladden in the CFO's chair.
In this economy, the news could have been so much worse. Right now, the company's revenue growth for the year is flat. Not down, not slumping, no potholes...just flat. Earnings for the quarter did come in below some analysts' estimates, but in fairness, those estimates were ridiculous. In the last quarter -- the company's fiscal Q4 2009 -- earnings were $351 million on revenue of $13.4 billion. That's a 16% annual drop in revenue, and if you were reading percentages alone, a 48% annual drop in earnings would look terrible. Keep in mind, though, these earnings are low to begin with, so the percentages will seem a little inflated.
But full-year revenues declined by a measly $32 million -- one two-hundredth of one percent -- to $61.103 billion. Not that fiscal 2008 was anything to write home about, but in a potentially disastrous period, fiscal 2009 was not worse. And that was reason to celebrate.
That Dell is capable of writing its earnings in black ink is an amazing feat, and even though he's not there now, Don Carty is probably to thank. Operating expenses for Q4 fell by $363 million over the final quarter of Dell's previous fiscal year (after adjustments) -- by 16% annually, meaning that the Michael Dell / Don Carty program of cost cuts could be entirely responsible for saving this quarter.
It's not really a sea of good news for Dell -- earnings per share ($0.18) is half of what it was in '08; taxes are only marginally lower but still high; and gross margin, in a word, sucks at 17.2%. But in a demonstration that Mr. Dell made the right investments at the right time for his company, his company's Mobility division -- responsible for notebooks and netbooks -- now account for a higher percentage of the company's sales than desktop PCs.
That's not to say sales aren't down. Revenues in the Mobility division are down 17% annually this last quarter, at just over $4 billion; desktop PC revenues are down 27% in the same period to $3.5 billion. The larger share of the sales decline is in the Asia Pacific / Japan region, down an additional 4% over the norm.
Dell's financial status is actually comparable to HP's, which was reported last week. The world's #1 producer reported 13% lower earnings.
Today, Dell lifted the veil on its latest XPS desktop model, which is a scaled down version of the product line that initially got it in trouble with its customers three years ago. But Mr. Dell was only Chairman then; whether the company has truly recovered, not only on the books but with its customers, may be indicated by how well it delivers on the promise of this system.