Dell, Inc. (DELL)
Q3 2010 Earnings Call Transcript
November 19, 2009 5:00 p.m. ET

Executives

Rob Williams - Director of Investor Relations
Brian Gladden - Senior Vice President and Chief Financial Officer
Michael Dell - Chairman and Chief Executive Officer

Analysts

Toni Sacconaghi - Sanford Bernstein
Bill Shope - Credit Suisse
Maynard Um - UBS
Richard Gardner - Citigroup
Ben Reitzes - Barclays Capital
Katie Huberty - Morgan Stanley
Mark Moskowitz - JPMorgan
David Bailey - Goldman Sachs
Keith Bachman - Bank of Montreal
Scott Craig - Banc of America
Chris Whitmore - Deutsche Bank
Amit Daryanani - RBC Capital Markets
Steven Fogs - CLSA
Jeff Fidacaro - Susquehanna
Jayson Noland - Robert Baird

Presentation

Operator

Good afternoon and welcome to the Dell Incorporated third quarter fiscal year 2010 earnings conference call. I would like to inform all participants that this call is being recorded at the request of Dell. This broadcast is the copyrighted property of Dell Incorporated, and any rebroadcast of this information in whole or part without the prior written permission of Dell Incorporated is prohibited. As a reminder, Dell is also simulcasting this presentation with slides at www.dell.com/investor. Later, we will conduct a question-and-answer session. If you had a question, simply press star then one on your telephone keypad at any time during the presentation.

I would like to turn the call over to Rob Williams, Director of Investor Relations. Mr. Williams, you may begin.

Rob Williams

Thanks, Kathy. With me today are Chairman and CEO, Michael Dell and CFO, Brian Gladden. Brian will review our third quarter results. Then Michael will follow with his perspective. When we get to Q&A just a reminder to limit your questions to one with a follow-up. We posted a web deck on dell.com, and we have also released a Vlog with Brian. So, I encourage you to review these as there is additional perspective on the quarter provided in those materials.

Our Investor Relations activities for the balance of the fiscal year included the CS First Boston Conference and the Raymond James IT Supply Chain Conference both in December. Our Perot Integration call, which is scheduled for the morning of December 6th and the JPMorgan Technology and UBS Retail Conferences at CES. December the 16th I believe is the correct date on the Perot Integration call.

Next, I would like to remind you that all statements made during this call that relate to future results and events are forward-looking statements that are based on our current expectations. Actual results and events could differ materially from those projected in the forward-looking statements because of a number of risks and uncertainties, which are discussed in our annual and quarterly SEC filings and in the cautionary statements contained in our press release and on our website. We assume no obligation to update our forward-looking statements.

With that, I would like to turn it over to Brian.

Brian Gladden

Thanks, Rob. We are encouraged by our third quarter results, especially in our large enterprise and SMB businesses where we saw sequential growth for the first time in seven quarters. This is a particular significance for Dell given our higher mix of commercial business relative to the industry and key competitors and the nature of the consumer led recovery. We also made solid progress on our key strategic initiatives this quarter. This includes improving the cost structure of the company through our COGS efforts and continued OpEx control, executing a differentiated enterprise strategy and delivering strong cash flow from operations.

Overall, we grew sequentially for the second quarter in a row, and we expect the fourth quarter to again be sequentially bigger than the third quarter. We saw improving demand momentum in our large enterprise and small and medium businesses later in the quarter, and this appears to be carrying over into our fourth quarter.

With that, let''s move to the third quarter P&L and the key performance metrics, which you will find on pages six and seven of the posted web deck.

Revenue was up 1% sequentially, while down 15% year-over-year to $12.9 billion. This year-over-year comparison has improved versus our first half year and year-over-year performance, which was a 23% decline. The commercial business, excluding a seasonally down public business, grew 4% sequentially on improving demand as we said in SMB and large enterprise.

Our third quarter reported revenue was adversely affected by the timing of the Windows 7 launch and our SMB and consumer businesses where we did build more backlog than normal due to the late quarter order dynamics. We expect our backlog to return to more normal levels in the fourth quarter, assuming we''ve managed through some of the component shortages, which I will discuss in a moment.