Dell Reports Earnings, Revenue Loss in Fourth Quarter

As the company looks to reinvent itself with Michael Dell at the helm, Dell still felt the sting of its lost market share to HP.

Dell, which has watched as other PC vendors continue to take away its market share, wrapped up a difficult financial period March 1 by announcing that its net income for the fourth fiscal quarter dropped 33 percent year-over-year.

In addition to its income, the Round Rock, Texas, PC maker reported that its earnings of 30 cents per share were 30 percent below its earnings of a year ago, when the company posted earnings of 43 cents a share. Revenue also fell about 5 percent from $15.2 billion in 2006 to 14.4 billion in 2007 .

For the quarter, which ended Feb. 2, the companys net income stood at $673 million compared to the $1.01 billion Dell earned during the same time in 2006. Analysts polled by Thomson Financial called for earnings per share of 29 cents and revenue of $14.9 billion.

The company did not have a customary call with analysts to discuss its results, but Michael Dell, in a statement, said he was disappointed with the results and that his company is working on improving its financial picture.

"We are systematically moving to increase efficiencies, improve execution and transform the company," Dell said in the statement. "Our business model will become more aligned with the needs of our customers, which will improve their experience and yield improved growth and profitability for the long term."

As problems continue with its own internal and accounting practices, Dell said that it may have to restate its earnings at another time. The company did not provide any additional revenue or income forecasts. Wall Street analysts have called for Dell to earn 28 cents a share in the first fiscal quarter with revenues of $14.3 billion.

The last few months have brought significant changes at Dell.

After watching the company lose market share to its main rival, Hewlett-Packard, Michael Dell stepped back into the role of CEO. On the same day, the company announced that its results would be below the expectations of Wall Street.

/zimages/7/28571.gifClick here to read more about Michael Dell returning to the company he founded.

Dell has also been involved in an ongoing investigation with the U.S. Securities and Exchange Commission. While the federal agency has not commented on the probe, Dell officials have said that it involved "certain accounting and financial reporting matters, including the possibility of misstatements in prior period financial reports."

In November, Dell also announced that it has been served with a subpoena from the U.S. Attorneys Office for the Southern District of New York. Federal authorities havent commented on the subpoena.

In announcing its latest quarterly results, Dell left open the possibility that the outside probes and its own internal audits could shift the companys prior and future financial outlooks.

"In addition, the preliminary results for the second, third and fourth quarters could be affected by any restatements of prior period financial statements that are required as a result of any conclusions reached by the investigations," the company said in a statement. "No determination has been made as to whether restatements of prior period financial statements will be required."

/zimages/7/28571.gifClick here to read more about Dells ongoing legal problems.

As a result of poor financial showing, Dell said it would cut back on the number of bonuses paid out to employees.

In trying to bounce back from its sagging fortunes, Dell reported that it would continue to strengthen its management team, shorten product development cycles and renew its commitment to customers.

Since he rejoined the company, Michael Dell has appointed two new managers. Mike Cannon, the former CEO of Solectron, is now the president of Global Operations, and Ron Garriques, a former executive vice president of Motorola, is now the president of the Global Consumer Group.

Richard Shim, an analyst with IDC, said Dell will continue to struggle for some time, and that the management shakeup is a sign of more changes to come.

"They are clearly on the ropes right now, but they have started to rebuild their management bench and have started to address some key issues," Shim said. "The two hires are focused on operations and consumers, and thats where the company has been struggling. The question is: Can they keep up with Wall Street and the market?"

For the fourth quarter, Dells revenue from notebooks fell 2 percent to $3.8 billion from a year ago, but its shipments of laptops increased 2 percent. Desktop revenue stood at $4.6 billion but the number of units shipped worldwide fell 18 percent.

Shim said that Dells desktop numbers hurt the company the most this quarter.

"The desktops were a real sore point," Shim said. "That was always their sweet spot and with those numbers being down, it really hurts them."

In order to reverse this trend, Shim said, the company needs to enter emerging markets, such as China and India, where a new group of consumers and businesses is hungry for affordable PCs.

On the brighter side, the number of servers the company shipped during the quarter increased about 2 percent with revenues of $1.5 billion. In May, the company started offering servers based on Advanced Micro Devices processors. The company now also offers PCs with AMD processors.

For years, the company resisted AMD processors and only sold hardware based on Intel processors.

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