Update: Dell profit dips in Q4 as revenue rises

Dell on Thursday reported a drop in profits during the fourth quarter of the company's 2010 fiscal year, but growth in revenue, fueled by strong sales of laptops and servers to the consumer and enterprise markets.

The company reported net income of $334 million for the fourth quarter, which ended Jan. 29, a drop of 5% compared to the fourth quarter of fiscal 2009. The company reported earnings per share of 17 cents, falling short of the 27 cents per share forecast by analysts polled by Thomson Reuters.

The company's revenue increased to $14.9 billion, compared to $13.4 billion in the previous year's fourth fiscal quarter. Revenue improved in all business segments, the company said in a statement.

Revenue grown was "solid ... in every part of our business," said Brian Gladden, Dell's chief financial officer, in a statement.

The revenue increase was partly driven by strength in commercial business, the company said. Revenue for the large enterprise unit was $4.2 billion, up 8% year over year. Revenue from the small and medium-size business segment was up 10% to $3.3 billion, driven by sales of mobile products and servers.

Dell also saw 11% year-over-year growth in consumer revenue to $3.5 billion. Revenue from consumer mobility products, including laptops, was up 26%. Shipments for those products grew 29% year over year.

Laptop revenue reached $4.5 billion during the fourth quarter, compared to $4 billion during last year's same quarter. Desktop revenue was $3.45 billion during the fourth quarter, falling from $3.54 billion last year.

PC shipments were surprisingly strong, but margins were disappointing because of lower average selling prices and pressure from component pricing, especially DRAM, Gladden said during a conference call to discuss the financial results.

"We like the growth ... but are really disappointed in the profitability," Gladden said. In an effort to cut costs and generate bigger margins, the company will continue to integrate manufacturing and simplify product offerings for consumers, he said.

The company plans to offer more single-configuration PCs and limit the number of ways that PCs can be configured "when necessary," Gladden said.

The company today operates only six factories to manufacture and assemble products, and nearly 53% of its products flow through contract manufacturers, Gladden said.

The company will also try to minimize the volatility of pricing on its consumer margins by making supply-chain adjustments, Gladden said.

Revenue grew on higher-margin enterprise offerings including servers, storage and services, said Dell's CEO, Michael Dell, during the call. The company saw 26% year-over-year growth in server revenue and 44% year-over-year growth in EqualLogic networking products, Dell said.

Dell also saw a big revenue jump from the acquisition of services company Perot Systems, which it bought for $3.9 billion in cash in November. The integration is going smoothly, and a lot of the existing Dell and Perot customers have given larger services contracts to the combined organization, Dell said. Dell in December integrated Perot Systems' operations into a new unit called Dell Services.

This was also the first full quarter in which Perot numbers were incorporated into quarterly earnings.

Dell said the demand in its commercial business was "continuing to return during the fourth quarter," and it is optimistic that the trend will continue into fiscal 2011. The company did not provide revenue projections for the first quarter of fiscal 2011.

Michael Dell said that while the company is committed to the consumer market, it is putting more focus on the enterprise market, which generates higher margins. Enterprises are beginning to invest in server and storage products, and are also refreshing clients with Microsoft's latest Windows 7 OS, he said.


Copyright © 2010 IDG Communications, Inc.

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