Global Growth in Dell’s Enterprise Solutions Contributes to Strong First Quarter Results  
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Global Growth in Dell’s Enterprise Solutions Contributes to Strong First Quarter Results  

ROUND ROCK, Texas — (BUSINESS WIRE) — May 20, 2010 — Commercial customers increased their purchases of Dell’s open, capable and affordable enterprise solutions in the fiscal first quarter, contributing to the company’s continued robust revenue, operating income and shipment growth.

Fiscal-Year 2011 First Quarter Highlights

  First Quarter
(in millions, except share data) FY11   FY10   Change
Revenue $ 14,874   $ 12,342   21 %
 
Operating Income (GAAP) $ 619 $ 414 50 %
Net Income (GAAP) $ 441 $ 290 52 %
EPS (GAAP) $ 0.22 $ 0.15 47 %
 
Operating Income (non-GAAP) $ 824 $ 638 29 %
Net Income (non-GAAP) $ 584 $ 486 20 %
EPS (non-GAAP) $ 0.30 $ 0.25 20 %

Information about Dell’s use of non-GAAP financial information is provided under “Non-GAAP Financial Measures” below. Non-GAAP financial information excludes costs related primarily to the amortization of purchased intangibles, severance and facility-action costs, acquisition-related charges and a provision for settlement of securities class-action litigation. All comparisons in this press release are year over year unless otherwise noted.

Results

Strategic Progress:

Business Units:

Quotes:

Michael Dell, chairman of the board and chief executive officer: “Our strategy and the significant investments we’re making to enhance our capabilities are providing more of the standards-based, flexible solutions that provide customers the highest value. These efforts are driving renewed Dell growth.”

Brian Gladden, chief financial officer: “This quarter was highlighted by good execution in an improving economic environment. We feel good about the growth across our commercial business as it approaches nearly $50 billion in revenues. We will continue to make investments in our enterprise solutions throughout the year.”

Company Outlook:

The company believes it is seeing the early stages of a corporate IT refresh. Commercial demand continued to build in the first quarter and Dell is optimistic the trend will continue throughout the year. Dell expects seasonal improvements from its state and local government, consumer and education businesses in the second quarter. But, the second quarter and the first part of the third quarter typically experience slower demand from larger commercial customers in the U.S. and Europe. Overall, Dell expects a normal, seasonal sequential demand pick-up in the low single digits in its second quarter. In addition, the company expects some components to remain in tight supply for the next couple quarters and some volatility in global currencies.

About Dell

Dell Inc. (NASDAQ: DELL) listens to customers and delivers worldwide innovative technology, business solutions and services they trust and value. For more information, visit www.dell.com. To hear a replay of the first-quarter analyst call with Michael Dell, chairman and CEO, Brian Gladden, CFO, and Brad Anderson, senior vice president, enterprise product group, go to www.dell.com/investors. To communicate directly with Dell, go to www.dell.com/dellshares.

Non-GAAP Financial Measures:

This press release includes information about non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share (collectively 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 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:

Statements in this press release that relate to future results and events (including statements about Dell’s future financial and operating performance, expected component pricing, global currency volatility and anticipated customer demand) are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on Dell's current expectations. 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: weak global economic conditions and instability in financial markets; weak economic conditions and additional regulation affecting Dell’s financial services activities; intense competition; Dell’s cost-cutting measures; Dell’s ability to effectively manage periodic product and services transitions; Dell’s ability to effectively manage the growth of its distribution capabilities and add to its product and services offerings; Dell’s ability to achieve favorable pricing from its vendors; Dell’s reliance on third-party suppliers for product components, including reliance on several single-sourced or limited-sourced suppliers; disruptions in component or product availability; successful implementation of Dell’s acquisition strategy; Dell’s ability to generate substantial non-U.S. net revenue; Dell’s product, customer, and geographic sales mix, and seasonal sales trends; Dell’s ability to access the capital markets; loss of government contracts; 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 hedge effectively its exposure to fluctuations in foreign currency exchange rates and interest rates; counterparty default; unfavorable results of legal proceedings; Dell’s ability to obtain licenses to intellectual property developed by others on commercially reasonable and competitive terms; expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other compliance matters; 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; information technology and manufacturing infrastructure disruptions or breaches of data security; Dell’s ability to attract, retain, and motivate key personnel; 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 January 29, 2010. 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, PowerEdge, Dell Precision and Vostro are trademarks 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
April 30, January 29, May 1,

2010(1)

2010(1)

2009 Sequential Yr. to Yr.
 
Net revenue
Products $ 12,086 $ 12,096 $ 10,232 0 % 18 %
Services, including software related   2,788     2,804     2,110   (1 %) 32 %
Net revenue   14,874     14,900     12,342   0 % 21 %
 
Cost of net revenue
Products 10,385 10,501 8,786 (1 %) 18 %
Services, including software related   1,973     1,930     1,388   2 % 42 %
Total cost of net revenue   12,358     12,431     10,174   (1 %) 21 %
 
Gross margin 2,516 2,469 2,168 2 % 16 %
 
Selling, general and administrative 1,730 1,780 1,613 (3 %) 7 %
Research, development and engineering   167     179     141   (7 %) 18 %
Total operating expenses   1,897     1,959     1,754   (3 %) 8 %
 
Operating income 619 510 414 21 % 50 %
 
Interest and other, net   (68 )   (41 )   (2 ) (67 %) NM
Income before income taxes 551 469 412 17 % 34 %
Income tax provision   110     135     122   (18 %) (10 %)
Net income $ 441   $ 334   $ 290   32 % 52 %
 
Earnings per share:
Basic $ 0.22   $ 0.17   $ 0.15   29 % 47 %
Diluted $ 0.22   $ 0.17   $ 0.15   29 % 47 %
 
Weighted average shares outstanding:
Basic 1,961 1,957 1,949 0 % 1 %
Diluted 1,973 1,971 1,952 0 % 1 %
 

Percentage of Total Net Revenue:

Gross margin 16.9 % 16.6 % 17.6 %
Selling, general and administrative 11.6 % 12.0 % 13.1 %
Research and development 1.1 % 1.2 % 1.1 %
Operating expenses 12.7 % 13.2 % 14.2 %
Operating income 4.2 % 3.4 % 3.4 %
Income before income taxes 3.7 % 3.2 % 3.3 %
Net income 3.0 % 2.2 % 2.3 %
Income tax rate 20.0 % 28.7 % 29.6 %
 

Net Revenue by Product Category:

Servers and Networking $ 1,785 $ 1,804 $ 1,286 (1 %) 39 %
Storage 554 599 534 (8 %) 4 %
Services(1) 1,891 1,922 1,238 (2 %) 53 %
Software and Peripherals 2,496 2,477 2,246 1 % 11 %
Mobility 4,563 4,653 3,875 (2 %) 18 %
Desktop PCs   3,585     3,445     3,163   4 % 13 %
Consolidated net revenue $ 14,874   $ 14,900   $ 12,342   0 % 21 %
 

Percentage of Total Net Revenue:

Servers and Networking 12 % 12 % 10 %
Storage 4 % 4 % 4 %
Services(1) 13 % 13 % 10 %
Software and Peripherals 17 % 17 % 18 %
Mobility 30 % 31 % 32 %
Desktop PCs 24 % 23 % 26 %
 

Net Revenue by Global Segment:

Large Enterprise $ 4,246 $ 4,197 $ 3,400 1 % 25 %
Public 3,856 3,820 3,171 1 % 22 %
Small and Medium Business 3,524 3,336 2,967 6 % 19 %
Consumer   3,248     3,547     2,804   (8 %) 16 %
Consolidated net revenue $ 14,874   $ 14,900   $ 12,342   0 % 21 %
 

Percentage of Total Net Revenue:

Large Enterprise 28 % 28 % 27 %
Public 26 % 26 % 26 %
Small and Medium Business 24 % 22 % 24 %
Consumer 22 % 24 % 23 %
 

Consolidated Operating Income:

Large Enterprise $ 283 $ 281 $ 192
Public 298 333 293
Small and Medium Business 313 282 230
Consumer   17     9     (1 )
Consolidated segment operating income 911 905 714
Severance and facility actions (57 ) (86 ) (185 )
Broad based long-term incentives (87 ) (107 ) (76 )
Amortization of intangible assets (88 ) (86 ) (39 )
Acquisition-related (20 ) (116 ) -
Legal Settlement   (40 )   -     -  
Consolidated operating income $ 619   $ 510   $ 414  

Note: Percentage growth rates and ratios are calculated based on underlying data in thousands.

(1) Includes the results of Perot Systems Corporation ("Perot Systems"), which was acquired on November 3, 2009, from the date of acquisition.

DELL INC.
Condensed Consolidated Statement of Financial Position and Related Financial Highlights
(in millions, except for "Ratios")
(unaudited)
   
April 30, January 29, May 1,
2010 2010 2009

Assets:

Current assets:
Cash and cash equivalents $ 10,255 $ 10,635 $ 9,691
Short-term investments 627 373 434
Accounts receivable, net 5,880 5,837 4,278
Financing receivables, net 3,221 2,706 1,775
Inventories, net 1,182 1,051 842
Other   3,619     3,643     2,890  
Total current assets 24,784 24,245 19,910
Property, plant and equipment, net 2,049 2,181 2,181
Investments 714 781 568
Long-term financing receivables, net 528 332 445
Goodwill 4,181 4,074 1,742
Purchased intangible assets, net 1,658 1,694 684
Other non-current assets   327     345     659  
Total assets $ 34,241   $ 33,652   $ 26,189  
 

Liabilities and Equity:

Current liabilities:
Short-term debt $ 1,079 $ 663 $ 101
Accounts payable 11,402 11,373 7,844
Accrued and other 3,449 3,884 3,464
Short-term deferred services revenue   2,950     3,040     2,732  
Total current liabilities 18,880 18,960 14,141
Long-term debt 3,582 3,417 2,396
Long-term deferred services revenue 3,194 3,029 2,954
Other non-current liabilities   2,607     2,605     2,468  
Total liabilities 28,263 28,011 21,959
Stockholders' equity   5,978     5,641     4,230  
Total liabilities and equity $ 34,241   $ 33,652   $ 26,189  
 
 

Ratios:

Days of sales outstanding (1)

38 38 34
Days supply in inventory 9 8 7
Days in accounts payable   (83 )   (82 )   (69 )
Cash conversion cycle   (36 )   (36 )   (28 )
 
Average total revenue/unit (approximate) $ 1,360 $ 1,340 $ 1,360

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 the other current assets. At April 30, 2010, January 29, 2010, and May 1, 2009, DSO and days of customer shipments not yet recognized were 35 and 3 days, 35 and 3 days, 31 and 3 days, respectively.

DELL INC.
Condensed Consolidated Statements of Cash Flows
(in millions, unaudited)
   
Three Months Ended
April 30, May 1,
2010

2009(1)

Cash flows from operating activities:
Net income $ 441 $ 290

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization 247 201
Stock-based compensation 76 67

Effects of exchange rate changes on monetary assets and

liabilities denominated in foreign currencies

30 -
Deferred income taxes (31 ) (26 )
Provision for doubtful accounts - including financing receivables 122 105
Other - 18
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable (119 ) 380
Financing receivables (208 ) (27 )
Inventories (132 ) 24
Other assets 69 547
Accounts payable 22 (483 )
Deferred services revenue 72 (25 )
Accrued and other liabilities   (351 )   (310 )
Change in cash from operating activities   238     761  
 
Cash flows from investing activities:
Investments:

Purchases

(350 ) (428 )
Maturities and sales 169 642
Capital expenditures (46 ) (80 )

Acquisition of business, net of cash received

  (133 )   (3 )

Change in cash from investing activities

  (360 )   131  
 
Cash flows from financing activities:
Repurchase of common stock (200 ) -
Issuance of common stock under employee plans 7 -

Issuance of commercial paper (maturity 90 days or less), net

234 -
Proceeds from debt 268 497

Repayments of debt

(566 ) (12 )
Other   3     -  

Change in cash from financing activities

  (254 )   485  
 
 

Effect of exchange rate changes on cash and cash equivalents

  (4 )   (38 )
 

Change in cash and cash equivalents

(380 ) 1,339
 

Cash and cash equivalents at beginning of period

  10,635     8,352  

Cash and cash equivalents at end of period

$ 10,255   $ 9,691  
 

(1) Prior period amounts have been reclassified to conform to the current year presentation.

SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES

The tables on the following pages set forth, for the periods indicated, a reconciliation of non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share (collectively, the “non-GAAP financial measures”) to the most comparable GAAP financial measures. These non-GAAP financial measures may not be directly comparable to similarly titled measures reported by other companies. See “Use of Non-GAAP Financial Measures” following the tables for additional information regarding Dell’s reasons for including the non-GAAP financial measures and for material limitations with respect to the usefulness of these measures.

DELL INC.
Reconciliation of Non-GAAP Financial Measures
(in millions, except per share data and percentages)
(unaudited)
         
Three Months Ended % Growth Rates
April 30, January 29, May 1,
2010 2010 2009 Sequential Yr. to Yr.
 
GAAP gross margin $ 2,516 $ 2,469 $ 2,168 2 % 16 %
 
Non-GAAP adjustments:
Amortization of intangibles 68 71 26
Severance and facility actions 29 55 65
Acquisition-related   1     1       -  
Non-GAAP gross margin $ 2,614   $ 2,596     $ 2,259   1 % 16 %
 
 
GAAP operating expenses $ 1,897 $ 1,959 $ 1,754 (3 %) 8 %
 
Non-GAAP adjustments:
Amortization of intangibles (20 ) (15 ) (13 )
Severance and facility actions (28 ) (31 ) (120 )
Acquisition-related (19 ) (115 ) -
Legal Settlement   (40 )   -     -  
Non-GAAP operating expenses $ 1,790   $ 1,798   $ 1,621   0 % 10 %
 
 
GAAP operating income $ 619 $ 510 $ 414 21 % 50 %
 
Non-GAAP adjustments:
Amortization of intangibles 88 86 39
Severance and facility actions 57 86 185
Acquisition-related 20 116 -
Legal Settlement   40     -     -  
Non-GAAP operating income $ 824   $ 798   $ 638   3 % 29 %
 
 
GAAP net income $ 441 $ 334 $ 290 32 % 52 %
 
Non-GAAP adjustments:
Amortization of intangibles 88 86 39
Severance and facility actions 57 86 185
Acquisition-related 20 116 -
Legal Settlement 40 - -
Aggregate adjustment for income taxes   (62 )   (78 )   (28 )
Non-GAAP net Income $ 584   $ 544   $ 486   7 % 20 %
 
 
GAAP earnings per share - diluted $ 0.22 $ 0.17 $ 0.15 29 % 47 %
Non-GAAP adjustments per share - diluted   0.08     0.11     0.10  
Non-GAAP earnings per share - diluted $ 0.30   $ 0.28   $ 0.25   7 % 20 %
 
 
GAAP Diluted WAS 1,973 1,971 1,952
 
 

Percentage of Total Net Revenue:

 
GAAP gross margin 16.9 % 16.6 % 17.6 %
Non-GAAP adjustment   0.7 %   0.8 %   0.7 %
Non-GAAP gross margin   17.6 %   17.4 %   18.3 %
 
GAAP operating expenses 12.7 % 13.2 % 14.2 %
Non-GAAP adjustment   (0.7 %)   (1.1 %)   (1.1 %)
Non-GAAP operating expenses   12.0 %   12.1 %   13.1 %
 
GAAP operating income 4.2 % 3.4 % 3.4 %
Non-GAAP adjustment   1.3 %   2.0 %   1.8 %
Non-GAAP operating income   5.5 %   5.4 %   5.2 %
 
Note: Percentage growth rates and ratios are calculated based on underlying data in thousands.

USE OF NON-GAAP FINANCIAL MEASURES

Dell provides non-GAAP financial information to investors to supplement GAAP financial information. Dell believes that excluding certain items from Dell’s GAAP results allows Dell’s management to better understand Dell’s consolidated financial performance from period to period and in relationship to the operating results of Dell’s segments, as management does not believe that the excluded items are reflective of underlying operating performance. The non-GAAP financial measures, as defined by Dell, represent the comparable GAAP measures adjusted to exclude acquisition related charges primarily related to our acquisition of Perot Systems in the fourth quarter of Fiscal 2010, amortization of purchased intangible assets related to acquisitions, severance and facility action costs, and a provision for a securities litigation matter that was accrued during the first quarter of Fiscal 2011. In the future, Dell expects that it may again exclude such items and may incur expenses similar to these excluded items, including in connection with any future acquisitions. Accordingly, the exclusion of these items and other similar items in Dell’s non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent, or unusual. Dell believes the non-GAAP financial measures will provide investors with useful information to help them evaluate Dell’s operating results. These non-GAAP financial measures facilitate an enhanced understanding of historical results and enable more meaningful period to period comparisons.

This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for gross margin, operating expenses, operating income, net income, and earnings per share prepared in accordance with GAAP.

The non-GAAP financial measures for the periods indicated in the tables above reflect adjustments related to the following items:

There are limitations to the use of non-GAAP financial measures. Other companies, including companies in Dell’s industry, may calculate the non-GAAP financial measures differently than Dell does, limiting the usefulness of those measures for comparative purposes. In addition, items such as amortization of purchased intangible assets represent the loss in value of intangible assets over time. The expense associated with this loss in value is not included in the non-GAAP financial measures and such measures, therefore, do not reflect the full economic effect of such loss. Lastly, items such as severance and facility action costs and acquisition expenses that are excluded from the non-GAAP financial measures can have a material impact on earnings. Dell’s management compensates for the foregoing limitations by relying primarily on Dell’s GAAP results and using non-GAAP financial measures only supplementally. Non-GAAP financial measures are not an alternative to GAAP financial measures and should be read only in conjunction with financial information presented on a GAAP basis. Dell provides detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within the financial information included with this press release and in other written materials that include the non-GAAP financial measures, and Dell encourages investors to review the reconciliations in conjunction with the presentation of any non-GAAP financial measures.



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