Dell: Enterprise IT Spending Drove Second-Quarter Revenue Increase

Dell's commercial and enterprise IT business boosted the PC-maker to a 22 percent revenue hike during the second quarter of its fiscal year 2011. Consumer sales were flat.

Dell beat Wall Street's modest revenue growth predictions for the second quarter of its fiscal year 2011. The Texas PC maker posted revenue of $15.5 billion, up 22 percent compared to the $12.7 billion in revenue the company pulled in a year earlier. Net income for the quarter was $629 million-up 9 percent from 2010.  

In a call with analysts, Dell executives said strong demand from commercial customers drove its better-than-expected upward movement.  

Dell's server and networking revenues, driven by blade server sales, increased by 35 percent. Storage revenue for the quarter improved by 13 percent.  

Service revenue, with the inclusion of Perot Systems, was up 57 percent, and thanks to a continuing corporate refresh cycle-following the release of Microsoft's Windows 7-Dell reported that it saw revenue in total mobility and desktop products grow 21 and 17 percent, respectively.  

Revenue in its consumer business, however, remained flat at $2.9 billion and operating income was a $21 million loss.  

"We're confident we can improve our consumer business operating margins to the 2 percent level in the near term," Dell CFO Brian Gladden said during the company's Aug. 19 conference call with analysts. "We've been repositioning the business, which involves targeting our efforts to the right geographies, products and customer sub-segments. We have a solid product portfolio lining up for the holidays, and we're making progress in simplifying our product portfolio."  

During the second quarter of 2010, Dell's PC shipments were neck-and-neck with rival Acer's. By research firm Gartner's estimates, Acer held the No. 2 worldwide position, shipping 10.8 million units to Dell's 10.3 million; IDC, however, put Dell in the No. 2 spot, with an estimated 10.6 million units to Acer's 10.2 million. Nonetheless, Dell's back-to-school sales in the United States have proven modest.  

"As we laid out at [our recent] analyst meeting, we have some pretty dramatic and significant actions underway to improve profitability in the business, especially in the retail business, and we've seen some progress there," Gladden offered. "Though, it's not quite evident yet."  

Dell additionally joined the U.S. consumer smartphone space Aug. 13, with the launch of the Streak, its first Android smartphone, of sorts, for the U.S. consumer market. The Streak, which offers cellular service as well as WiFi and 5-inch touch display, falls into an unusual space, as it's small for a tablet but large for a smartphone. Its price tag-$100 higher than current high-end smartphones but $200 less than Apple's least expensive iPad (when purchased with a two-year AT&T service plan)-has left analysts equally unsure of how the hybrid device will fare with consumers.  

During the Aug. 19 call, CEO Michael Dell was asked what affect the Apple iPad-as well at the number of Android-running devices expected to join the tablet space in time for the holiday season-have on his thoughts, regarding the positioning of the Streak toward the end of the year. Dell's answer, however, was more of a non-answer.  

"I think it's a question of how many tablets do you think will be sold. If the PC market is 380 million units and the tablet market is-take a guess. I'm not sure that it's a huge percentage this year," Dell said. "Certainly there's a lot of excitement around Android, and we're participating in that. Lots of folks are working on tablet and touch-type solutions. I think next year you'll see a lot more of them."  

Dell's consumer business comprises 19 percent of its income, and in a written statement proceeding the call, CEO Dell made his priorities more clear.  

"This quarter's results are a strong reflection of the progress we've made," Dell said in the statement, "and we remain very focused on delivering the best possible solutions and services to meet our customers' IT needs."