This is a summary of the first quarter fiscal 2009 earnings call conducted by Dell (DELL) on May 29, 2008
Management:
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Chairman of the Board and Chief Executive Officer Michael Dell
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Incoming Chief Financial Officer Brian Gladden
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Chief Financial Officer Don Carty
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Investor Relations Lynn Tyson
Key Investor Issues:
- Earnings of $784 million or 38 cents a share were up 12% from the prior year.
- Revenue was up by 19% year-over-year to $16.1 billion from $14.7 billion in 2007.
-The firm spent $1 billion to buy back 52 million shares.
First Quarter Highlights:
Dell generated $16 billion in revenue, a 9% increase on a 22% increase in units driven by emerging countries and also by the retail initiatives.
- On a product basis, the growth in units was driven by a 43% increase in mobility products.
- Worldwide consumer units were up 47%. APJ and EMEA commercial units were up 31% and 30% respectively.
- In the key BRIC countries where 14% of the industry growth will come from in five years, the firm outperformed all major competitors.
- Revenue was up 58% on a 73% increase in units And BRIC now stands at close to 9% of the revenue mix while revenue mix from outside the United States reached a high of 50%.
Operating expenses were down 100 basis points sequentially to 12.9% of revenues.
- Earnings of $784 million or 38 cents a share were up by 12% from $752 million or 34 cents a share in 2007 due to the jump in the revenues which was spurred by the growth in global consumer units.
- Dell had $106 million in expense which amounts to 4 cent a share to realign the business; it includes severance costs and facility closures.
- The firm had $26 million or 1 cent a share in the amortization expenses of purchased intangible assets associated with the acquisitions and $19 million in expense or 1 cent a share in investigative related costs.
- The firm had a $42 million increase in financing and other income or 2 cents a share related to an error in currency exchange rates from prior periods and a $46 million or 2 cent a share reversal in the provision for employee bonuses for fiscal 2008.
Cash flow from operations was $143 million and the firm ended the period with $9.8 billion in cash and investments.
-The company spent $1 billion to buy back 52 million shares. This quarter Dell expects to spend at least $1 billion on share repurchase.
- A total of $1.5 billion was raised in private placement debt for general corporate purposes $200 million in debt was paid off.
- The cash conversion cycle was negative 30 days, driven by increases in DSO, in DSI and a slight decrease in days payable outstanding.
Segmental Analysis:
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APJ Commercial revenue was up 19% to $2 billion on a 31% increase in units.
- Operating income was up 52% on a very balanced country segment and product performance.
- Revenue in India and China grew at 52% and 30% on a 68% and 43% increase in units respectively.
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Global Consumer revenues grew year-over-year to $2.9 billion as units grew by 47% year-over-year.
- Units grew more than two times the market and increased global share by 1.2 points to 8.8%
- Unit growth in U.S. was by over 52% year-over-year and in APJ they were up 93% on a comparable basis while notebook units grew by 78% year-over-year.
- The firm expanded global retail to 13,000 stores by adding Suning in China and Costco in the U.S.
- Operating income increased to $35 million
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EMEA Commercial revenue was up 15% to $3.8 billion on a 30% increase in units.
- Server units were up 20%, 2.5 times the rate of the industry and growth in notebooks also outpaced the industry with a 59% increase in units.
- From a country perspective, units were up 20% in the UK and the region saw strong double-digit growth in countries like Russia and Turkey and the Ukraine.
- Profitability in EMEA was adversely impacted by a favorable warranty change that helped the prior year quarter.
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Americas commercial revenue increased 1% to $7.3 billion on a 3% increase in units as mobility products were up 11% and desktops declined 2%.
- Operating income declined as the business absorbed acquisitions and invested in sales capability.
- In client mobility units up 43% and that drove a 22% increase in revenue.
- Desktops grew with a 9% increase in units which drove a 5% decline in revenue.
Server revenues were up 4% but on a 21% increase in units that allowed the firm to gain 1.5 points of share.
- The enhanced services revenue is up 13% aided by the first full quarter of the new Pro Support offerings.
- The services attach rates increased by 24% and the deferred services revenue balance grew 23% to $5.4 billion.
- Software and peripherals revenue increased 17% and as a result of the ASAP acquisition, S&P growth was aided by strength in software resale and the licensing business associated with that acquisition.
Fiscal Outlook 2008
-Dell will continue to incur costs to improve competitiveness, reduce headcount and invest in infrastructure and acquisitions.
-There is conservatism in IT spending in the U.S. and that has extended from global and large customers into public, small and medium business accounts and there are expectations of that to continue through the summer
-Dell will continue to benefit from improving performance in areas like emerging countries, notebooks, enterprise and services which collectively are driving a more diversified portfolio of geographies and products.
-Dell plans to improve competitiveness and is targeting $3 billion in annualized savings by fiscal 2011.
