Dell, Inc. (DELL)
Q4 2009 Earnings Call Transcript
February 26, 2009 5:00 p.m. ET

Executives

Lynn A. Tyson - Vice President of Investor Relations
Michael S. Dell – Chairman & Chief Executive Officer
Brian T. Gladden – Senior Vice President & Chief Financial Officer

Analysts

Richard Gardner – Citigroup
Kathryn Huberty – Morgan Stanley
Tony Sacconaghi - Sanford C. Bernstein & Co.
Bill Shope – Credit Suisse
Keith Bachman – Bank of Montreal
Benjamin Reitzes – Barclays Capital
Mark Moskowitz - JPMorgan
Chris Whitmore – Deutsche Bank
Shannon Cross – Cross Research
David Wong – Wachovia Capital Markets
Maynard Um – UBS
Jayson Noland – Robert W. Baird & Co.
Scott Craig – Bank of America/Merrill Lynch
Bill Fearnley, Jr. - FTN Equity Capital
Andy Hargreaves – Pacific Crest Securities

Presentation

Operator

Good afternoon and welcome to the Dell, Inc. fourth quarter fiscal year 2009 earnings conference call. I’d like to inform all participants this call is being recorded at the request of Dell. This broadcast is the copyrighted property of Dell, Inc. Any rebroadcast of this information in whole or part without the prior written permission of Dell, Inc. 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 have a question, simply press “*” then “1” on your telephone keypad at any time during the presentation. I’d like to turn the call over to Ms. Lynn A. Tyson, Vice President of Investor Relations. Ms. Tyson, you may begin.

Lynn A. Tyson

Thank you. With me today are Chairman and CEO, Michael Dell, and Senior Vice President and CFO, Brian Gladden. Brian will review our fourth quarter results, our ongoing initiatives to improve our competitive position and our working capital management activities. Michael will follow with his perspectives on strategy, particularly as it relates to the current IT spending environment.

To get additional insights on our results this quarter, please watch the Vlog interview with Brian Gladden hosted by Rob Williams, Director of Investor Relations. We posted it on our Dell Shares blog right after we posted earnings this afternoon. Also, we continue to refine the earnings web deck that accompanies this call to better address your questions. And so I encourage you to read it in detail.

All growth comparisons made on this call are year over year unless otherwise stated. Our IR activities begin this year with Brian at Morgan Stanley next week, and a Vlog covering global operations with Jeff Clarke, Vice Chairman, Operations and Technology.

Finally, I’d 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 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 statement contained in our press release and on our website.

With that I’ll turn it over to Brian.

Brian T. Gladden

Thanks Lynn. We started fiscal year 2009 with clear and simple operating priorities focused on five growth initiatives and a plan to capture $3 billion of cost opportunities by the end of fiscal year 2011. While we did call out a year ago that we were seeing signs of spending conservatism, we saw a good start to the year before customers began to defer their IT purchases in the second half of the year. Against this backdrop we focused our efforts on elements of our business and strategy we could control, delivering great technology, service, and value to our customers, progressing towards an industry leading cost position, and driving disciplined working capital management. Full year and fourth quarter financial results demonstrate the progress we made on several of these initiatives during the year. We’ll be the first to admit that this is a work in process and there is more to do.

In my comments I’m going to focus my attention on the current environment, but you’ll find a review of our full-year performance on page five and page 25 in the supplemental section of our web deck.

So let’s take a look at the P&L for the fourth quarter, which you’ll find on page six of the web deck. Revenue was down 16% to $13.4 billion as we saw a continued weak demand environment. As we announced earlier we absorbed $277 million or $0.11 after tax of expenses which were comprised of $134 million in organizational effectiveness costs and $143 million related to incremental stock-based compensation. The majority of these organizational effectiveness expenses are classified as cost of goods sold while the stock-based compensation is primarily in SG&A.

Gross margins have been relatively stable for the past several quarters and if you exclude the impact of the organizational effectiveness expenses and stock comp, gross margin rates were again above 18% for the quarter.