Dell Reports Strong Profitability in Third Quarter

Non-GAAP Financial Measures:

This press release includes information about non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share (collectively with non-GAAP gross margin and non-GAAP operating expenses, the “non-GAAP financial measures”), which are not measurements of financial performance prepared in accordance with U.S. generally accepted accounting principles. In the following tables, Dell has provided a reconciliation of each historical non-GAAP financial measure to the most directly comparable GAAP financial measure under the heading “Reconciliation of Non-GAAP Financial Measures” and has presented a detailed discussion of its reasons for including the non-GAAP financial measures and the limitations associated with those measures under the heading “Use of Non-GAAP Financial Measures.” Dell encourages investors to review the reconciliation and the non-GAAP discussion in conjunction with Dell’s presentation of these non-GAAP financial measures.

Special Note on Forward Looking Statements:

Statements in this press release that relate to future results and events (including statements about Dell’s future financial and operating performance, trends relating to enterprise, solutions and services, Dell’s strategies and spending relating to investments and research and development, anticipated customer demand, global macroeconomic uncertainty, geographic trends, operating expense strategies, and hard drive and other component supply, as well as the financial guidance with respect to revenue and non-GAAP operating income) are forward-looking statements and are based on Dell's current expectations. In some cases, you can identify these statements by such forward-looking words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “confidence,” “may,” “plan,” “potential,” “should,” “will” and “would,” or similar expressions. Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements because of a number of risks, uncertainties and other factors, including: intense competition; Dell’s cost-cutting measures; Dell’s ability to effectively manage the growth of its distribution capabilities and add to its product and services offerings; Dell’s ability to effectively manage periodic product and services transitions; weak global economic conditions and instability in financial markets; Dell’s ability to generate substantial non-U.S. net revenue; weak economic conditions and additional regulation affecting Dell’s financial services activities; Dell’s ability to achieve favorable pricing from its vendors; Dell’s ability to deliver consistent quality products and services; Dell’s reliance on third-party suppliers for product components, including reliance on several single-sourced or limited-sourced suppliers; successful implementation of Dell’s acquisition strategy; Dell’s product, customer, and geographic sales mix, and seasonal sales trends; access to the capital markets by Dell or its customers; loss of government contracts; the risk of temporary suspension or debarment from contracting with U.S. federal, state and local governments as a result of settlements of an SEC investigation by Dell and Dell’s Chairman and CEO; customer terminations of or pricing changes in services contracts, or Dell’s failure to perform as it anticipates at the time it enters into services contracts; Dell’s ability to obtain licenses to intellectual property developed by others on commercially reasonable and competitive terms; information technology and manufacturing infrastructure disruptions or breaches of data security; Dell’s ability to hedge effectively its exposure to fluctuations in foreign currency exchange rates and interest rates; counterparty default; unfavorable results of legal proceedings; expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other compliance matters; Dell’s ability to attract, retain, and motivate key personnel; Dell’s ability to maintain strong internal controls; changing environmental and safety laws; the effect of armed hostilities, terrorism, natural disasters, and public health issues; and other risks and uncertainties discussed in Dell’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for its fiscal year ended Jan. 28, 2011. In particular, Dell’s expectations with regard to revenue and non-GAAP operating income for the full fiscal year ending Feb. 3, 2012 assume, among other matters, that there is no significant decline in economic conditions generally or demand growth specifically, that macroeconomic uncertainties do not materialize into significant economic difficulties, that Dell is able to adequately address hard drive supply challenges, no significant change in product mix patterns, continued geographic customer demand trends, continued successful demand planning and forecasting, no supply chain disruptions, and no significant adverse component pricing or supply movements. Dell assumes no obligation to update its forward-looking statements.

Consolidated statements of income, financial position and cash flows and other financial data follow.

Dell is a trademark of Dell Inc. Dell disclaims any proprietary interest in the marks and names of others.

         
 
DELL INC.
Condensed Consolidated Statement of Income and Related Financial Highlights
(in millions, except per share data and percentages)
(unaudited)
 

Three Months Ended

% Growth Rates

October 28, July 29, October 29,
2011 2011 2010 Sequential Yr. to Yr.
 
Net revenue
Products $ 12,312 $ 12,610 $ 12,520 (2 %) (2 %)
Services, including software related   3,053     3,048     2,874   0 % 6 %
Net revenue   15,365     15,658     15,394   (2 %) 0 %
 
Cost of net revenue
Products 9,797 9,935 10,415 (1 %) (6 %)
Services, including software related   2,099     2,198     1,976   (5 %) 6 %
Total cost of net revenue   11,896     12,133     12,391   (2 %) (4 %)
 
Gross margin 3,469 3,525 3,003 (2 %) 16 %
 
Selling, general and administrative 2,107 2,174 1,816 (3 %) 16 %
Research, development and engineering   220     205     163   7 % 35 %
Total operating expenses   2,327     2,379     1,979   (2 %) 18 %
 
Operating income 1,142 1,146 1,024 0 % 12 %
 
Interest and other, net (1)   (70 )   (55 )   52   (28 %) (235 %)
Income before income taxes 1,072 1,091 1,076 (2 %) 0 %
Income tax provision   179     201     254   (11 %) (29 %)
Net income $ 893   $ 890   $ 822   0 % 9 %
 
Earnings per share:
Basic $ 0.49   $ 0.48   $ 0.42   2 % 17 %
Diluted $ 0.49   $ 0.48   $ 0.42   2 % 17 %
 
Weighted average shares outstanding:
Basic 1,813 1,858 1,939 (2 %) (6 %)
Diluted 1,828 1,871 1,949 (2 %) (6 %)
 

Percentage of Total Net Revenue:

Gross margin 22.6 % 22.5 % 19.5 %
Selling, general and administrative 13.8 % 13.9 % 11.8 %
Research and development 1.4 % 1.3 % 1.0 %
Operating expenses 15.2 % 15.2 % 12.8 %
Operating income 7.4 % 7.3 % 6.7 %
Income before income taxes 7.0 % 7.0 % 7.0 %
Net income 5.8 % 5.7 % 5.3 %
Income tax rate 16.7 % 18.4 % 23.6 %
 

Net Revenue by Product Category:

Servers and Networking $ 2,089 $ 2,054 $ 1,844 2 % 13 %
Storage 460 502 543 (8 %) (15 %)
Services 2,123 2,036 1,924 4 % 10 %
Software and Peripherals 2,528 2,569 2,579 (2 %) (2 %)
Mobility 4,750 4,761 4,858 0 % (2 %)
Desktop PCs   3,415     3,736     3,646   (9 %) (6 %)
Consolidated net revenue $ 15,365   $ 15,658   $ 15,394   (2 %) 0 %
 

Percentage of Total Net Revenue:

Servers and Networking 14 % 13 % 12 %
Storage 3 % 3 % 3 %
Services 14 % 13 % 12 %
Software and Peripherals 16 % 16 % 17 %
Mobility 31 % 31 % 32 %
Desktop PCs 22 % 24 % 24 %
 

Net Revenue by Global Segment:

Large Enterprise $ 4,487 $ 4,584 $ 4,326 (2 %) 4 %
Public 4,375 4,457 4,442 (2 %) (2 %)
Small and Medium Business 3,712 3,709 3,665 0 % 1 %
Consumer   2,791     2,908     2,961   (4 %) (6 %)
Consolidated net revenue $ 15,365   $ 15,658   $ 15,394   (2 %) 0 %
 

Percentage of Total Net Revenue:

Large Enterprise 29 % 29 % 28 %
Public 29 % 28 % 29 %
Small and Medium Business 24 % 24 % 24 %
Consumer 18 % 19 % 19 %
 

Consolidated Operating Income:

Large Enterprise $ 441 $ 448 $ 400
Public 463 484 451
Small and Medium Business 386 404 391
Consumer   76     73     -  
Segment operating income 1,366 1,409 1,242
Severance and facility actions - - (31 )
Broad based long-term incentives (78 ) (81 ) (75 )
Amortization of intangible assets (100 ) (95 ) (89 )
Acquisition-related   (46 )   (87 )   (23 )
Consolidated operating income $ 1,142   $ 1,146   $ 1,024  
 
 
Note: Percentage growth rates and ratios are calculated based on underlying data in thousands.
 

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