Dell Earnings: Half Empty or Half Full?

Dell (DELL-NASDAQ) posted earnings today, sort of.  The stock traded up 0.7% to $23.01 in regular trading for the day, despite the fact that no one was looking for much great news and despite the fact that Michael Dell was not doing a regular conference call.   The company posted $0.30 EPS & Revenues of $14.4 Billion ($0.29 & $14.9B est.), plus it ended the quarter with $12.5 Billion in cash and investments.  Earnings were helped by a suspension of many employee bonuses (+$0.06); extra ongoing investigation costs (-$0.03); and a one-time real estate gain (+$0.01).  So that would be $0.26 EPS from operation on a normalized basis.

Michael Dell’s comments:  "We are disappointed with the company’s results, but what matters is our future plan of action. We are systematically moving to increase efficiencies, improve execution and transform the company….  Our business model will become more aligned with the needs of our customers, which will improve their experience and yield improved growth and profitability for the long-term…. We won’t achieve our goals overnight, but we will achieve our goals… We will be known again for strong operating and financial performance and a great experience for our customers. But it will take time to realize the future benefits of the improvements we are making today."

The company said it is moving quickly to strengthen its management team, unify business units, and eliminate redundancies, while redeploying resources to drive greater value for customers. The company also said it is moving to shorten product development cycles, make decisions closer to the customer, and develop new approaches to manufacturing and distribution to better reach and serve customers in fast-growing and emerging markets.  What I want to know is this:  Does this mean "retail disribution channels" too?

International shipments exceeded US shipments for the first time, although there was a large drop in desktops by 18% and mobile computing bu 2%.  Servers accounted for $1.5 Billion in sales, storage was $0.6 Billion, enterprise "P{latinum Plus" in enhanced services was $1.5 Billion.

The company warns on margins in coming quarters: The company is focused on transformational efforts that are designed to yield improving operational results, customer experience, financial performance and shareholder value. These investments in the coming quarters should produce a more optimal balance of growth, profitability and liquidity over the long term. In the next several quarters, however, the company expects that growth and margins will continue to be under pressure as it implements and refines these actions.

Dell also now has until MAY 4 to submit additional information to NASDAQ for its listing status.  Shares of DELL initially popped up by over 2% before the street read the details on the EPS items, the margin warning, the longer-term restructuring, and the drop in PC’s by 18%.  Shares are now down 1.5% at $22.65 in after hours.  This one is a horserace so trying to call this one ahead of tomorrow and ahead of research calls is probably premature.  Wall Street should have been braced for this though, and I could even make the argument that this wasn’t nearly as bad as it could have been. 

Jon C. Ogg
March 1, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.