Dell Reports Strong First Quarter as It Increases Enterprise, Cloud Focus
The business customers of No. 2 PC maker Dell helped the company finish its fiscal 2012 first quarter ahead of estimates, with net income of $945 million on revenue of $15 billion. While the revenue figure was up 1 percent from a year ago, net income was up 177 percent.
However, disappointing tablet sales cut into PC sales across the industry during the quarter, and for Dell there was no exception, with revenue in its consumer sector falling 7 percent. Its large enterprise and small and medium business categories saved the day, however, with the former posting record income of $504 million-up 5 percent from a year ago-and the latter posting record profit, up 7 percent to $3.8 billion.
Dell's very enterprise-focused two-pronged strategy-"accelerating investment in enterprise solutions and services and improving execution in core client businesses"-is paying off, Dell CFO Brian Gladden said during a May 12 conference call with media and industry analysts.
Dell is also focusing on three domains-next-generation computing solutions; intelligent data management, services and security; and cloud computing offerings-and to this end has made strategic acquisitions over the last year. Going forward, it plans to remain laser-focused on the enterprise, with an allotted $1 billion slated for cloud capabilities, and to add "significant numbers of new engineering, development and solutions-based sales resources in the U.S. and globally to support its enterprise solutions and services focus," Dell said in a statement.
Technology Business Research (TBR) analyst Greg Richardson, in a May 17 report, applauded Dell's use of its traditional PC business to extend itself deeper into enterprises as well as to reposition itself.
"Through the purchases of Compellent, SecureWorks, Boomi and KACE, Dell has inorganically positioned itself to take on competitors such as IBM and HP, who can address large-scale buildouts of integrated hardware and software with their services and software portfolios," wrote Richardson. "By offering hardware and software that enabled the development of virtualized environments, as well as design, implementation and support services, Dell further positions itself as a solutions provider."
Richardson added that Dell, which has traditionally worked alone, has done "an about-face" in working with channel and service partners and designing solutions that enable partners to gain revenue by attaching services to Dell offerings.
While creating solutions for its longtime customers in verticals such as health care, education and the public sector-Dell executives on the call repeated that they've been having "deeper conversations with customers about their tech challenges and opportunities"-the company also plans to address new verticals.
"We expect Dell to go outside its comfort zone in coming quarters, targeting vertical expansion in key industries such as financial services and telecommunications, and strengthening its position in the services and security markets," wrote TBR's Richardson.
Dell, too, is positive about the coming quarters, and offered second-quarter guidance of 5 to 9 percent, which it acknowledged is slightly above the norm and attributed in part to stronger spending among state and local government and education customers as they close their fiscal years.
On the topic of tablet sales, which are lumped together with PC sales these days-CEO Michael Dell described the disconnect between tablet sales and an enterprise focus, explaining that in all instances Dell has looked into, the tablet is a third device-coming after smartphones and PCs-"and you can't find a lot of companies that are going to have three devices for all of their users."
While Gartner and other firms are forecasting gangbuster tablet sales, which very well may happen, Dell added, "We're not seeing tablets replacing the smartphone or the PC in large numbers in organizations."
The day before, Dell competitor Hewlett-Packard reported modest gains for its fiscal second quarter, which ended April 30. CEO L??Â«o Apotheker pointed to sales of tablets and phone devices, particularly from Apple and Samsung, saying they're noticeably cutting into its PC business. He also added that HP was focusing more on services, and will be accelerating efforts to "align our services business model to our long-term strategy."