Dell says we live in exciting times for servers and other corporate computing gear.
The PC maker, based in Round Rock, Texas, posted on Feb. 16 a higher-than-expected fourth fiscal quarter 2006 profit of 43 cents a share after a tax adjustment. Revenue for the quarter, which ended in January, jumped 13 percent year over year to $15.2 billion, the company said.
Dell executives, discussing the quarter in a pair of conference calls, expressed optimism about the technological state of affairs in the computer industry.
Some new technologies mentioned included dual-core processors, SAS (serial-attached SCSI) for storage and Microsofts Windows Vista for PCs.
“Were refreshing our entire server product line with ninth-generation servers that will incorporate all of these new technologies” such as dual-core processors, Kevin Rollins, Dells CEO, said in a conference call with reporters. “Its looking, technologically, to be a very healthy year.”
Moreover, there are no signs of economic slowdown, Rollins said.
“Were bullish on the industry and think all of these technology advances can only be positive,” he said.
Dell sees smaller, more powerful standardized servers coming to the enterprise thanks to dual-core processors and other improvements. As the bulk of corporate servers include one or two sockets or provisions for processors, this is “Dells sweet spot,” Rollins said.
The companys ninth-generation servers will roll out during the first half of 2006, the executives indicated in the post-earnings conference calls. It seems unlikely those machines will include AMD chips at the outset, despite reports that Dell has been prepping AMD systems.
The executives said Dells current plans are to stay with Intel processors, pointing out that Dells server shipments grew 11 percent year over year and 7 percent sequentially for the quarter, outpacing those of competitors.
“We see no need to change [processors] at this point in time,” Rollins told analysts on a call. “With that said were not an exclusive buyer of Intel only. We dont have an exclusive arrangement.”
Dells new machines are more likely to use hardware such as Intels Bensley platform for dual-processor servers, which includes a dual-core 65-nanometer Xeon DP processor dubbed Dempsey. The platform has been upgraded to double the bus and memory channels, opening up the flow of data inside the machines.
Bensley will be able to accommodate Woodcrest, another dual-core chip, which is based on Intels forthcoming new processor micro-architecture and designed to use less power than existing chips, while bumping performance.
Turning to storage, Dells revenue in that area grew 41 percent year-over-year and 30 percent sequentially, the company said. It did not break out shipments for the quarter.
In the spring and summer of 2006, Dell will roll out new PowerVault and Dell-EMC storage products that take advantage of new technologies, including 4G-bps Fibre Channel connections, iSCSI, SAS and SATA (Serial ATA) hard drives, Rollins said.
Dell also sees the potential for a bump in PC sales from Windows Vista, the newest version of Windows, due out from Microsoft in fall of 2006. People will use Vista at home and demand it at work, Chairman Michael Dell said on a call with analysts.
Because of the changes present in Vista, “I believe this transition is going to be a pretty powerful catalyst,” he said, adding that after using the operating system, people will go back into the office and ask, “How come my PC is no good?” That could lead to some corporate desktop upgrades after Vista starts to take hold in the consumer market, he predicted.
Thus, “We think its going to be a pretty exciting OS transition cycle,” he said.
Putting the Focus on
During the quarter, Dell shipped more than 10 million units, sorted out its U.S. consumer PC business and saw corporate sales in its Americas region increase as well.
“We think weve got [the U.S. consumer PC business] in good shape now and that our consumer business is healthy,” Rollins said. “The focus, now, is on our enterprise products.”
Overall, sales in the Americas were up 10 percent year-over-year. Corporate revenue in the United States, including SMBs (small and midsize businesses), increased 12 percent year over year, Dell said.
However, much of the companys quarterly upside came from sales of products outside of the United States.
Dell, which said it shipped over 100,000 servers in a quarter in Europe for the first time during the fourth fiscal quarter, said business outside the United States jumped 21 percent year over year for the quarter.
A company record of 43 percent of Dells revenue came from outside the United States during the period, up from 40 percent in its third fiscal quarter 2005.
The upswing in non-U.S. business is inspiring a greater international focus from Dell, which continues to seek growth in areas such as Europe and Asia. Dell executives said they believe the company can increase its sales at twice the industry pace in Asia and Japan, for example.
Dells Asia Pacific and Japan region saw revenue increase by 21 percent and units jump 27 percent year over year during the quarter. Dells China business grew units 28 percent year over year, the company said.
Dell will increase its workforce in those areas as well, leading to an increase in workers based outside the United States. The companys practice has been to locate its operations, including PC factories, close to its customers.
Thus, while it has opened a new U.S. plant in North Carolina, it has also added a second plant in Xiamen, China. It also intends to build a plant in India within the next couple of years, Rollins indicated.
“With only 10 percent market share in Asia and 11 percent in Europe…you can see the growth opportunities [in those markets] are more pronounced than in the United States,” where Dells share is about 32 percent, he said.
“Thats not going to be a shift in the work force. Its going to be an acceleration of the growth … [However,] I think Asia jobs will grow faster than U.S. jobs and so that may look like a shift.”
The company tempered its first-quarter fiscal year 2007 outlook a bit, calling for revenue of between $14.2 billion and $14.6 billion and earnings per share of 39 cents to 41 cents, before accounting for stock-based compensation.
The forecast, which accounts for the typical seasonal slowdown seen between the fourth calendar quarter and the first calendar quarter of the following year—and in addition, Dells fourth quarter included an extra week, giving it a revenue pop—disappointed some, London-based news service Reuters reported on Feb. 17.
“The guidance for the April quarter is disappointing,” Reuters quoted Cindy Shaw, an analyst at Moors & Cabot Capital Markets, as saying. “It suggests that revenue growth will slow further.”
Rollins said the guidance was appropriate, given seasonal trends, the shorter quarter and Dells own size. “Were not seeing any other factors,” he said.