Cash from operations totaled $1 billion, while cash and marketable securities at the end of the quarter were $14.6 billion. The company plans to resume its share repurchase program in early December.
"We embarked this year on a long-term strategy to re-ignite growth and our Q3 results indicate we're making solid progress through investments in five key business priorities - consumer, emerging countries, notebooks, enterprise and small/medium business," said Michael Dell, chairman and CEO. "Initiatives to simplify IT will drive innovation across all industries, creating new value for customers and shareholders. For consumers we will continue to launch products that set the bar for design, personalization, and price performance - and we will make them available in more places than ever before."
Third Quarter Year to Date
(in millions, except FY'08 FY'07 Change FY'08 FY'07 Change
share data)
------------------------ ----------------------
Revenue $15,646 $14,419 9% $45,144 $42,950 5%
Operating Income $829 $734 13% $2,664 $2,243 19%
Net Income $766 $601 27% $2,268 $1,857 22%
EPS $0.34 $0.27 26% $1.00 $0.82 22%
All comparisons in this press release are year-over-year unless otherwise noted.
Profitability
Operating profit benefited from strength in mobility, solid demand in enterprise products and a continued favorable component-cost environment. These benefits were largely offset by costs the company is incurring as it restructures to improve productivity and execution, reduce headcount where appropriate, and invest in infrastructure and key growth priorities. For example, the company incurred $50 million, or $0.02 per share, related to employee reductions and asset disposals. In addition, the company incurred $28 million, or $0.01 per share related to the Audit Committee investigation which was concluded during the quarter and other related costs. Earnings for the quarter were positively impacted by an adjustment of $45 million, or $0.02 per share, to lower the company's effective tax rate for the year primarily because of a larger-than-expected mix of profits from outside the U.S.
"Our strong cash flow in the quarter demonstrates we are taking the right actions to create value. We are committed to a growth strategy that includes acquisitions as well as a long-term share repurchase plan, as we transition cash and investments to lower levels while retaining financial flexibility," said Don Carty, vice chairman and CFO, Dell.
Regional and Product Highlights
Revenue for the Americas Business, which includes corporate and public customers in the U.S., as well as Americas International, was up seven percent. The company maintained its No. 1 position in the U.S. commercial segment, with 34 percent of all units shipped(1). Americas International, which includes Latin America and Canada, had revenue growth of 19 percent year-over-year with 45 percent growth in Brazil. In addition, a Forrester Research survey(2) released earlier this month called Dell "clearly the No. 1 enterprise desktop and laptop supplier" to North American and European enterprises. The survey of 565 PC decision makers also showed that Dell in Q3 held "its sizable lead over the second-closest competitor" across the regions and company sizes in both product segments.
In Asia-Pacific and Japan, where the company is actively expanding its presence, revenue in the quarter grew by 18 percent on a 20 percent increase in units. Highlights in the region include India and China where revenue grew 47 percent and 22 percent, respectively.
Revenue increased 14 percent and shipments were up 13 percent in Europe, Middle East and Africa (EMEA). Revenue for servers and storage in the region were up 15 percent and 13 percent, respectively.
Sales outside the United States were up 16 percent and represented 46 percent of the company's overall revenue, reflecting continued strength in emerging countries.
Globally, revenue from mobility products increased 19 percent on a 25 percent increase in units. Revenue from both servers and storage grew eight percent and shipments of servers increased seven percent. Enhanced services revenue grew seven percent to $1.4 billion. Desktop PC revenue declined one percent as the industry continues to shift towards mobility. Software and peripherals revenue posted an increase of 11 percent.
Key Business Priorities
-- Consumer: While revenue for Dell's U.S. Consumer business declined six percent, the business segment made strong progress against key initiatives, including new product design, channels, product personalization and mobility. Consumers will be able to buy Dell products in nearly 10,000 stores including Gome, China's largest consumer electronics retailer, and Staples' 1,400 stores across the U.S. During the quarter, Dell closed the acquisition of ZING Systems Inc., a consumer technology and services company focused on always-connected audio and entertainment devices.
-- Emerging Countries: China, Brazil and India registered strong unit growth of 26, 30 and 42 percent, respectively. Combined Brazil, Russia, India and China (BRIC) revenue growth during the quarter was 32 percent. The company plans to continue its initiative of tailoring solutions to meet specific regional needs, enhancing partner relationships to provide customer choice and flexibility, and expansion into these and other emerging countries that represent 85 percent of the world's population.
-- Notebooks: Notebooks are expected to grow at six times the rate of desktop systems for the next several years, and Dell plans to increase the speed with which it introduces new products, while lowering costs and tailoring mobile devices for specific customer segments. The Dell XPS M1330 notebook was labeled a "dream machine" in Time Magazine's Best Inventions of 2007 issue earlier this month.
-- Enterprise: Dell unveiled multiple products and marketing initiatives to help customers simplify IT. These included new virtualization technologies that embed Citrix's XenServer on future PowerEdge servers, allowing customers to install and manage virtual machines almost immediately upon start up. On Demand Desktop Streaming will simplify desktop administration and management by combining all the benefits of traditional thin clients with the performance of standard desktops. Dell also completed the acquisition of Silverback Technologies, growing its Software As A Service (SaaS) IT monitoring and management capabilities.
-- Small/Medium Business: New products for the SMB market included the PowerVault MD3000i which simplifies storage consolidation. In this, the fastest growing segment of the storage market - iSCSI, Dell also announced the planned acquisition of EqualLogic.
Company Outlook
The company continues to focus on strategic priorities that will provide better value to customers while driving a more optimal balance of liquidity, profitability and growth. As the company executes against these priorities it will continue to incur costs as it restructures to improve productivity and execution, reduce headcount where appropriate, and invest in infrastructure and acquisitions. These actions, which the company believes are necessary to drive long-term sustainable value, may adversely impact the company's performance. In addition, the company's near term results could be adversely impacted by a slower decline in component costs and a seasonal shift in mix to U.S. consumer and international regions.
Strategy Update and Earnings Call
Dell will conduct a 90-minute conference call today, Nov. 29, at 3:30 p.m. CST, to discuss its long-term strategy and Q3 results. Mr. Dell, Mr. Carty and Steve Schuckenbrock, president of Global Services and Chief Information Officer, will provide an update focused on the company's key growth priorities.
Annual Meeting and Analyst Meeting Update
The Company's annual meeting of shareholders will be held Dec. 4, 2007, at the company's Round Rock, Texas, headquarters. The Company also plans to conduct an analyst meeting on April 2 and 3, 2008, in Round Rock, Texas.
About Dell
Dell Inc. (NASDAQ: DELL) listens to customers and delivers innovative technology and services they trust and value. Uniquely enabled by its direct business model, Dell is a leading global systems and services company and No. 34 on the Fortune 500. For more information, visit www.dell.com, or to communicate directly with Dell via a variety of online channels, go to www.dell.com/conversations. To get Dell news direct, visit www.dell.com/RSS.
(1) Source: IDC Preliminary Top 10 Vendors, Worldwide PC Shipments, Third Quarter 2007 (Preliminary)
(2) Source: Forrester Research, Inc., How Enterprise Buyers Rate Their PC Suppliers And What It Means For Future Purchases. The State Of The Enterprise PC -- 2007 And Beyond. Ben Gray, November 12, 2007
Special Note
Statements in this press release that relate to future results and events (including statements about future financial and operating performance) are forward-looking statements based on Dell's current expectations. Actual results and events in future periods could differ materially from those projected in these forward-looking statements because of a number of risks and uncertainties including: general economic, business and industry conditions; our ability to maintain a cost advantage over our competitors; local economic and labor conditions, political instability, unexpected regulatory changes, trade protection measures, tax laws, copyright levies and fluctuations in foreign currency exchange rates; our ability to accurately predict product, customer and geographic sales mix and seasonal sales trends; information technology and manufacturing infrastructure failures; our ability to effectively manage periodic product transitions; any additional issues or matters that may arise from the ongoing SEC investigation; our ability to successfully remediate identified internal control deficiencies; our reliance on third-party suppliers for quality product components, including reliance on several single-source or limited-source suppliers; our ability to access the capital markets; litigation and governmental investigations or proceedings arising out of or related to accounting and financial reporting matters; our acquisition of other companies; our ability to properly manage the distribution of our products and services; effective hedging of our exposure to fluctuations in foreign currency exchange rates and interest rates; obtaining licenses to intellectual property developed by others on commercially reasonable and competitive terms; our ability to attract, retain and motivate key personnel; loss of government contracts; expiration of tax holidays or favorable tax rate structures; changing environmental laws; and the effect of armed hostilities, terrorism, natural disasters and public health issues. For a discussion of those and other factors affecting Dell's business and prospects, see Dell's periodic filings with the Securities and Exchange Commission.
DELL INC.
Condensed Consolidated Statement of Income and Related Financial
Highlights
(in millions, except per share data or as otherwise noted)
(unaudited)
Three Months Ended
---------------------------------
November 2, August 3, November 3, % Growth Rates
---------------------
2007 2007 2006 Sequential Yr. to Yr.
----------- --------- ----------- ---------------------
Net revenue $15,646 $14,776 $14,419 6% 9%
Cost of revenue 12,758 11,825 12,028 8% 6%
----------- --------- -----------
Gross
margin 2,888 2,951 2,391 (2%) 21%
Selling,
general
and
administrative 1,900 1,894 1,531 0% 24%
Research,
development
and
engineering 159 155 126 3% 27%
----------- --------- -----------
Total
operating
expenses 2,059 2,049 1,657 0% 24%
----------- --------- -----------
Operating
income 829 902 734 (8%) 13%
Investment and
other income,
net 107 96 66 11% 62%
----------- --------- -----------
Income before
income taxes 936 998 800 (6%) 17%
Income tax
provision 170 252 199 (33%) (14%)
----------- --------- -----------
Net income $766 $746 $601 3% 27%
=========== ========= ===========
Earnings per
common share:
Basic $0.34 $0.33 $0.27 3% 26%
=========== ========= ===========
Diluted $0.34 $0.33 $0.27 3% 26%
=========== ========= ===========
Weighted
average shares
outstanding:
Basic 2,236 2,237 2,229
Diluted 2,266 2,264 2,238
Percentage of
Total Net
Revenue:
---------------
Gross margin 18.5% 19.9% 16.6%
Selling,
general and
administrative 12.2% 12.8% 10.6%
Research,
development
and
engineering 1.0% 1.0% 0.9%
Operating
expenses 13.2% 13.8% 11.5%
Operating
income 5.3% 6.1% 5.1%
Income before
income taxes 6.0% 6.8% 5.6%
Net income 4.9% 5.1% 4.2%
Income tax rate 18.2% 25.3% 24.9%
Net Revenue by
Geographic
Region (in
billions):
---------------
Americas $9.7 $9.2 $9.2 5% 5%
Europe 3.8 3.5 3.4 10% 14%
Asia Pacific -
Japan 2.1 2.1 1.8 2% 18%
Percentage of
Total Net
Revenue:
---------------
Americas 62% 62% 64%
Europe 24% 24% 23%
Asia Pacific -
Japan 14% 14% 13%
Net Revenue by
Product
Category (in
billions):
---------------
Desktop PCs $4.8 $5.0 $4.8 (5%) (1%)
Mobility 4.7 3.9 3.9 22% 19%
Servers and
Networking 1.6 1.6 1.5 2% 8%
Storage 0.6 0.6 0.6 2% 8%
Enhanced
Services 1.4 1.3 1.3 6% 7%
Software and
Peripherals 2.5 2.4 2.3 6% 11%
Percentage of
Total Net
Revenue:
---------------
Desktop PCs 30% 34% 33%
Mobility 30% 26% 27%
Servers and
Networking 11% 11% 11%
Storage 4% 4% 4%
Enhanced
Services 9% 9% 9%
Software and
Peripherals 16% 16% 16%
Note: Percentage growth rates and ratios are calculated based on
underlying data in thousands.
DELL INC.
Condensed Consolidated Statement of Operations and Related Financial
Highlights
(in millions, except per share data or as otherwise noted)
(unaudited)
Nine Months Ended % Growth
-----------------------
November 2, November 3, Rates
----------
2007 2006 Yr. to Yr.
----------- ----------- ----------
Net revenue $45,144 $42,950 5%
Cost of revenue 36,467 35,913 2%
----------- -----------
Gross margin 8,677 7,037 23%
Selling, general and administrative 5,557 4,414 26%
Research, development and
engineering 456 380 20%
----------- -----------
Total operating expenses 6,013 4,794 25%
----------- -----------
Operating income 2,664 2,243 19%
Investment and other income, net 281 170 65%
----------- -----------
Income before income taxes 2,945 2,413 22%
Income tax provision 677 556 22%
----------- -----------
Net income $2,268 $1,857 22%
=========== ===========
Earnings per common share:
Basic $1.01 $0.82 23%
=========== ===========
Diluted $1.00 $0.82 22%
=========== ===========
Weighted average shares
outstanding:
Basic 2,236 2,263
Diluted 2,262 2,278
Percentage of Total Net Revenue:
-----------------------------------
Gross margin 19.2% 16.4%
Selling, general and administrative 12.3% 10.3%
Research, development and
engineering 1.0% 0.9%
Operating expenses 13.3% 11.2%
Operating income 5.9% 5.2%
Income before income taxes 6.5% 5.6%
Net income 5.0% 4.3%
Income tax rate 23.0% 23.0%
Net Revenue by Geographic Region
(in billions):
-----------------------------------
Americas $27.8 $27.6 1%
Europe 11.1 9.8 13%
Asia Pacific - Japan 6.2 5.6 11%
Percentage of Total Net Revenue:
-----------------------------------
Americas 62% 64%
Europe 24% 23%
Asia Pacific - Japan 14% 13%
Net Revenue by Product Category (in
billions):
-----------------------------------
Desktop PCs $14.7 $15.1 (2%)
Mobility 12.6 11.6 9%
Servers 4.9 4.2 15%
Storage 1.8 1.6 10%
Enhanced Services 3.9 3.8 4%
Software and peripherals 7.2 6.7 8%
Percentage of Total Net Revenue:
-----------------------------------
Desktop PCs 32% 35%
Mobility 28% 27%
Servers 11% 10%
Storage 4% 4%
Enhanced Services 9% 9%
Software and peripherals 16% 15%
Note: Percentage growth rates and ratios are calculated based on
underlying data in thousands.
DELL INC.
Condensed Consolidated Statement of Financial Position and Related
Financial Highlights
(in millions, except for "Ratios" and "Other information")
(unaudited)
November 2, August 3, November 3,
2007 2007 2006
----------- --------- -----------
Assets:
------------------------------------
Current assets:
Cash and cash equivalents $12,236 $11,204 $7,998
Short-term investments 369 658 1,320
Accounts receivable, net 6,156 5,296 4,804
Financing receivables, net 1,560 1,531 1,529
Inventories, net 1,102 973 680
Other 2,925 2,552 2,676
----------- --------- -----------
Total current assets 24,348 22,214 19,007
Property, plant and equipment, net 2,631 2,608 2,215
Investments 1,980 1,960 2,219
Long-term financing receivables, net 389 375 311
Other non-current assets 1,032 897 711
----------- --------- -----------
Total assets $30,380 $28,054 $24,463
=========== ========= ===========
Liabilities and Stockholders'
Equity:
------------------------------------
Current liabilities:
Short-term borrowings $266 $328 $322
Accounts payable 11,411 10,578 10,335
Accrued and other 6,373 6,160 6,958
----------- --------- -----------
Total current liabilities 18,050 17,066 17,615
Long-term debt 392 378 579
Other non-current liabilities 4,993 4,566 2,789
----------- --------- -----------
Total liabilities 23,435 22,010 20,983
Redeemable common stock 101 116 88
Stockholders' equity 6,844 5,928 3,392
----------- --------- -----------
Total liabilities and stockholders'
equity $30,380 $28,054 $24,463
=========== ========= ===========
Ratios:
------------------------------------
Days supply in inventory 8 7 5
Days of sales outstanding (1) 38 35 33
Days in accounts payable 81 80 78
----------- --------- -----------
Cash conversion cycle (35) (38) (40)
Other Information:
------------------------------------
Regular headcount (approximate) 81,900 84,000 79,100
Temporary headcount 7,200 7,100 8,500
----------- --------- -----------
Total headcount 89,100 91,100 87,600
Average total revenue/unit
(approximate) $1,520 $1,520 $1,530
Note: Ratios are calculated based on underlying data in thousands.
(1) Days of sales outstanding ("DSO") is based on the ending net trade
receivables and most recent quarterly revenue for each period. DSO
includes the effect of product costs related to customer shipments
not yet recognized as revenue that are classified in other current
assets. At November 2, 2007, August 3, 2007 and November 3, 2006, DSO
and days of customer shipments not yet recognized were 35 and 3 days,
32 and 3 days and 30 and 3 days, respectively.
DELL INC.
Condensed Consolidated Statement of Cash Flows
(in millions)
(unaudited)
Three Months Ended Nine Months Ended
------------------------------------
November 2, 2007
------------------------------------
Cash flows from operating
activities:
Net income $766 $2,268
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 153 424
Stock-based compensation
expense 97 398
Tax benefits from stock-based
compensation - (12)
Effects of exchange rate
changes on monetary assets
and liabilities denominated
in foreign currencies 9 40
Other 48 76
Changes in:
Operating working capital (340) (2,072)
Non-current assets and
liabilities 265 1,630
------------------ -----------------
Net cash provided by
operating activities 998 2,752
Cash flows from investing
activities:
Investments:
Purchases (323) (2,088)
Maturities and sales 618 2,745
Acquisition of business, net of
cash acquired (87) (106)
Capital expenditures (172) (636)
------------------ -----------------
Net cash provided by (used
in) investing activities 36 (85)
Cash flows from financing
activities:
Purchases of common stock (1) (1)
Issuance of common stock under
employee plans - 21
Excess tax benefits from stock-
based compensation - 12
Payment of commercial paper,
net (60) (100)
Other (9) (18)
------------------ -----------------
Net cash used in financing
activities (70) (86)
Effect of exchange rate changes
on cash and cash equivalents 68 109
------------------ -----------------
Net increase in cash and cash
equivalents 1,032 2,690
Cash and cash equivalents at
beginning of period 11,204 9,546
------------------ -----------------
Cash and cash equivalents at end
of period $12,236 $12,236
================== =================
Additional supplemental information is available on our website at
www.dell.com/investor
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