RSSThe Dell surprise: Higher earnings on lower revenue
By Scott M. Fulton, III | Published November 21, 2008, 11:51 AM
Amid all the bad economic news, including a downturn in PC market growth projections for 2009 by nine points, who would have thought the company best suited to weather the storm could be one that just emerged from a storm?
You may not have to look to the end of the tunnel for signs of light today. In a clear demonstration that Mark Hurd is not the only fellow who can shape up a company to emerge from scandal unscathed and healthy enough to tackle a fresh new year of hell, yesterday was the day of Michael Dell.
With three percent lower revenue than in a quarter already dubbed one of Dell's worst, Dell Computer eked out earnings per share that were 9% higher than Q3 2007 -- now at $0.37 per share. Net income rose 18% over a terrible fiscal Q2 2008, and were only down 5% overall over last year.
The numbers truly are gratifying: $15.1 billion in revenue for the quarter ending in October, down just 3% annually. Gross margins remain lousy but stable, with slight growth even there, to close to 19%. But operating expenses are down by 8%, due in large part by having let 2,200 more employees go in the previous quarter. For those thousands, it's a terrible holiday season; but for Dell Computer, the news could have been so much worse.
How is Dell pulling it off? First, as became evident during yesterday afternoon's quarterly conference call with analysts, the company is pushing harder toward selling higher-margin profits to bigger businesses, with the fastest growing segment being storage.
"Over the last four quarters," stated new Dell CTO Brian Gladden, "our mix of revenue and profit in our commercial business has improved with over a third of our revenues now coming from higher margin products like storage services and software peripherals." (Our thanks to Seeking Alpha for the transcript.)
In the commercial sector, sales in almost every segment were down, leading to a 14% decline in shipments and 8% decline in revenue. The reasons are no shock to anyone. Even as the company transitioned to a promising new Latitude notebook design for businesses, sales there still declined 4%. US sales declined somewhat more than European sales.
But the Asia Pacific region saw growth commercially, with operating income from the China, Japan, and Southeast Asia climbing a tremendous 60%.
And believe it or not, Dell's biggest comeback this quarter -- at the worst possible time for everyone else -- was its biggest or second biggest weakness all through 2006 and '07: the consumer division. Taking a gamble by outsourcing more production and moving support personnel back to the US, where taxes are much higher, unit shipments to the consumer segments rose an astounding 32% over the previous year's fiscal Q3, picking up revenue by 10%. Feeling the full effects of the economic storm, American consumers -- of all people -- are saving Dell Computer.
Does this mean the company is gaining market share, especially against the current market leader HP? CEO Michael Dell told one analyst he's not keeping score on that count, at least not now. "I think that we'd like to gain share, sure we'd like to gain share," he remarked, "but we're more focused on having solid profitability. I don't think we really know what the growth of the industry's going to be next year. We're planning a pretty conservative set of assumptions on the belief that it's easier to dial it up than to dial it down."
I wonder if selling XP or Vista when most others were selling only Vista made a difference. I know several people who made their decision of brand based on the OS pre-istalled.
If Ubuntu came preinstalled, and for less money than a Windows install, I'd probably buy one.
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** Dell could be screwing you over big time **
If you order from Dell directly check you aren't being charged delivery on each PC even if they are shipped together e.g. 10 machines on a pallet board. You may be being charged 10% of the unit cost or more for each unit in just delivery charges even thought they all shipped together.
Dell kit makes sense to a lot of firms because of what appears to be a good deal and low unit cost but it becomes more expensive than the competitors when you added the delivery and other hidden charges.
By my own benchmarks a current business model (optiplex 755) only just beats some of HPs range from almost two generations ago.
Personally I think the performance of their kit sucks when you consider they do use bulk 'good quality components and so there must be something fundementally wrong with the way they put it all together to make them run so badly (perhaps the OEM motherboard, custom BIOS etc).
Anyhow I urge you all to do some evaluation tests for yourself and also CHECK YOUR DELIVERY CHARGES!
Dizzy
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Had four Dells over the last eight years, never been disappointed yet.
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Dell has good reliable computers.
But the new Latitude is the most ugly laptop
I have ever seen. I ordered one and it was
the worst design I have ever seen Dell release.
They need some help from Sony or Apple.
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took a look at dell recently and I was surprised how incredibly expensive they are these days.
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DELL.. argh. My company uses DELL. They suck!, but you get what you paid for.
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How so?
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He's just spewing crap. My company uses Dell and they've been absolutely bullet-proof. Amazing corporate support when you have questions or need custom hardware too. Even the Dell computers/laptops my family has purchased (and beaten the hell out of) have never had any problems.
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what made dell attractive to business's was the line of credit it provided to them.
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Agree on the business use and I've been happy with the home PCs as well.
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i have 2 dells at the home, they have been rock solid
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LOL...yea, they are the only company that provides a 'line of credit' to businesses. I love people that talk about things they know nothing about. :)
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Yeah their PCs are good, too bad support on the consumer side is utter crap. Outsourced to people who can't even speak english nor have any decent PC knowledge.
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You forgot to mention another strategy they're using. Forced Furlow of all workers. Our rep called us this week to let us know he wouldn't be available next week, as Dell was telling all the sales staff to take the week off without pay.
You won't see that "positive" in this quarter's results, but you should next quarter (especially if they make everyone take a week at Christmas without pay as well).
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Not so bad when you consider the alternative is to downsize further and to not have any job at all...
Oh...
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He's learning the lesson from Apple at least. People would rather have a computer from a Chinese factory with good customer support.
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A testimony to the brilliance of Mr.Michael Dell:)
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Same thing I was thinking. Michael Dell cares for his company--alot. I wish more CEO's were like him in that regard.
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