November 29th, 2007

Dell hopes to generate 'product lust' following mixed earnings bag

Posted by Larry Dignan @ 1:32 pm

Categories: Dell, General, Hardware Infrastructure

Tags: Revenue, Dell Computer Corp., Earnings, Sales Strategy, Operational Accounting, Sales Force Management, Sales, Finance, Larry Dignan

Dell reported third quarter earnings of $766 million, or 34 cents a share, on revenue of $15.6 billion amid strong demand for notebooks. CEO Michael Dell said the PC maker is hoping to generate “product lust” with better designs to grow.

According to Thomson Financial, analysts were expecting earnings of 35 cents a share on revenue of $15.3 billion. The company took a $50 million, or two cents a share, charge for layoffs. That charge, however, was offset by a benefit due to lower tax rates. There was also a charge of a penny a share due to Dell’s accounting investigation. Without those one-time items, Dell would have reported earnings of 35 cents a share.

In a statement Thursday, Michael Dell said the company is “making solid progress” on its business priorities of focusing on the consumer, emerging markets, notebooks, enterprise and SMB. As for technology spending, Dell said that there was some caution at financial services customers, but “overall demand has been good.”

Dell (all resources) held its first conference call–a 90 minute strategy session–in a year. On the call, Dell laid out its current state and where it sees itself headed. Michael Dell said the company plans on being a leading consumer brand, grow abroad and simplify the enterprise IT experience.

A good chunk of time on the call was spent on Dell’s consumer strategy, which the company hopes will spark growth. Dell is hoping to generate some “product lust.” “We’re focused on product lust across our global brands,” said Dell.

By the numbers:

• Operating income was $829 million, up 13 percent from a year ago.

• Desktop PC revenue was $4.8 billion, down one percent from a year ago. Notebook revenue shined, up 19 percent from a year ago to $4.7 billion. Dell noted that it plans to ride the laptop momentum for years to come by cutting the time to design a product and introducing leading-edge technology. Michael Dell added that consumer notebook purchases will outpace commercial notebook sales in the near future.

• On the enterprise side, servers and networking sales were up 8 percent to $1.6 billion. Storage sales were $600 million, up 8 percent from a year ago. Services sales gained 7 percent to $1.4 billion in the quarter. Dell is hoping power and cooling will give the company an edge in the enterprise and in data centers. Steve Schuckenbrock, president of global services and CIO, said that Dell will make a big data center push by using open standards and simplifying architecture. If Dell can simplify enterprise technology with its services it can generate an annuity revenue stream. Schuckenbrock also talked up the acquisition of Everdream, which will enable customers to better manage technology assets. You can expect Dell to push the IT as a service mantra in the next year. “This will allow customers to focus on the day to day business,” said Schuckenbrock.

• Software and peripherals sales came in at $2.5 billion, up 11 percent from a year ago.
• Revenue in the Americas was up 7 percent from a year ago. Brazil grew 45 percent for Dell. Revenue from Americas International, basically Latin America and Canada, was up 19 percent. Dell’s revenue in China was up 22 percent while India sales jumped 47 percent.
• Europe Middle East and Africa posted sales growth of 14 percent. International revenue represented 46 percent of Dell’s total revenue.
• Dell plans on buying back stock in “early December.”

Overall, analysts on the call seemed concerned about Dell’s plans to invest in the business and potentially raise capital spending plans. There were also questions about Dell’s headcount, which hasn’t come down. Donald Carty, CFO of Dell, said the company is looking to automate more roles and is examining positions in various units. Carty noted that to expand in key areas Dell will have to increase operating expenditures.

Analysts tried to nail down Dell on its commitment to lowering headcount to no avail. The company had said it would lower headcount by 10 percent a year. Carty said that goal is still there with caveats as the company tries to expand into new markets.

Meanwhile, Dell didn’t provide much of an outlook much to the chagrin of analysts. Bear Stearns analyst Andy Neff asked Carty: “How will we know how you are doing?” The response more or less: Dell doesn’t do guidance. Here’s the company’s official 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.

Translation: Dell still has a lot of work to do.