Dell reports it saw strong revenue growth across all of its businesses in the fourth quarter, but issues such as high component prices and increased holiday sales of low-margin PCs led profits to fall by 5 percent. Dell isn't seeing the same sort of increase in consumer business that rivals HP and Acer are, but revenue in commercial products rose 26 percent, the company says.
Dell saw its fourth-quarter 2009 revenues jump on the strength of commercial
products such as servers and storage, but profits declined thanks in part to
weakness in the consumer PC business.
The mixed bag of financial results that Dell executives
announced Feb. 18 were in contrast to the strong earnings unveiled by their
counterparts at rival Hewlett-Packard the night before, who said profits during
the same period jumped $400 million.
During conference calls with analysts and reporters, Dell
officials said each of the company's business units saw revenue growth, with
commercial-focused products like servers, storage and networking garnering a 26
percent jump in revenue.
However, Dell-now the world's third-largest
behind HP and Acer-didn't see the same kind of bump from the
recovery of consumer sales that competitors got, despite such drivers as
Microsoft's late-2009 introduction of its Windows 7 operating system and the
promise of new processors from the likes of Intel and Advanced Micro Devices.
And while HP announced market-share gains in PCs, Dell didn't see such
Overall, Dell revenue in the fourth quarter hit $14.9 billion,
an 11 percent increase over the same period last year. However, net income was
$334 million, a 5 percent decline over the $351 million reported for the fourth
quarter of 2008.
During the conference calls, CEO
Michael Dell and Chief Financial Officer Brian Gladden were peppered with
questions about the company's relatively low gross profit margins, particularly
in light of the revenue and shipment gains in the business segments.
Both Dell executives said most of problems were attributable to
the consumer business, where they didn't see the same increase in demand as on
the commercial side, and where, like other vendors, Dell was squeezed by high
prices for components such as DRAM (dynamic RAM).
The company also was hurt by increased sales of less-profitable PCs during the
"We were disappointed by the margins," Dell said.
However, he cautioned against reading too much into the
numbers, pointing out that the company was still working to make changes to
help with the bottom line, from simplifying the product portfolio to reducing
expenses in the supply chain. Such efforts will continue over the next few
quarters, Dell said.
It's all part of a larger push by Dell since he returned as CEO
in 2007. Since that time, he has cut more than 10,000 jobs-though he added
24,000 with the $3.9 billion purchase in late 2009 of Perot
-and has outsourced much of the company's manufacturing, which has
allowed some facilities to be shut down. Dell has stated that he hopes to have
reduced costs by $4 billion by the end of 2011.
In addition, the company is continuing its efforts on the commercial
side to move into higher-margin sectors with longer recurring revenue streams,
he said. The commercial space is an important one for Dell, given that it
accounts for the bulk of revenues for the company.
Dell officials for more than a year have been pushing to
diversify the company beyond its PC roots. That includes not only expanding
such commercial businesses as its services and data center solutions units, but
also moving into such consumer areas as smartphones, with its Dell
But it was in the commercial space where Dell saw its greatest
strength in the quarter. Total commercial revenue grew 11 percent year over year,
and all segments showed increased demand. Sales of enterprise systems grew 17
percent over the third quarter of 2009, large enterprise revenue was up 8
percent over the same period last year, and small and midsize business revenue
was up 10 percent.
Dell and Gladden also spoke of the company's ongoing push to
broaden its commercial reach, aided by some past acquisitions, including EqualLogic's
storage business and more recently Perot, which is now Dell's services
Dell said he will continue looking to acquisitions to build up
the company's portfolio in data center solutions and other areas. A case in
point was Dell's announcement Feb. 11 that it is buying virtualization
software maker Kace Networks.
Both Dell and Gladden echoed what executives of other OEMs have
said, namely that they expect to see business demand continue to pick up as
2010 rolls along, driven by aging hardware and software and the demand for such
products as Windows 7 and the upcoming eight-core "Nehalem EX" Xeon
chip from Intel.
"As we go to Nehalem EX, the ROI [for customers] just goes
higher, and it becomes much more compelling," Dell said. "The age of
the installed base is significant and our customers are seeing a refresh as a