Dell Sails Past Estimates, Cuts 10% Headcount

Dell Inc. (DELL-NASDAQ) posted much better than the pessimistic expectations with preliminary $0.34 EPS and $14.6 Billion in revenues versus expectations of $0.26 EPS and $13.95 Billion per First Call estimates.  Shares are now up almost 5% at $28.30 in after-hours.

In the quarter, gross and operating income margins were positively affected by a favorable decline in component costs. In addition, a focus on more richly configured customer solutions and a better mix of products and services yielded significantly higher average selling prices and a better balance of profitability and revenue growth. In the quarter, the company incurred approximately $46 million, or $0.02 per share, in costs associated with the ongoing investigations into certain accounting and financial reporting matters.

The stock closed at $24.22 the day (January 31, 2007) the announcement came that Michael was retaking the lead and shares closed at $26.91 on the day.  On that same January 31, Hewlett-Packard shares closed at $43.19 and those shares are at $45.71 as of today’s close.

RESTRUCTURING & TRANSFORMATION INFO:
    * Restructured the senior leadership team to enhance accountability, bring clarity to the company’s transformation strategy and move decision-making closer to the customer.
    * Improved customer satisfaction ratings through increased investment in technical support resources like Dell Support Center and DellConnect. These investments helped the company achieve a 66 percent decrease in the number of times customers are transferred before their issue or question is resolved.
    * Strengthened the foundation for renewed growth in established and emerging regions through innovative products tailored to specific customer needs such as the EC280 system introduced for China, and new manufacturing and development facilities in high-growth regions like Brazil.
    * Globalized the services business around a strategy of embedding supportability and serviceability into hardware, simplifying and standardizing service options and delivery, and enhancing remote monitoring and resolution capability to minimize IT infrastructure costs for customers.
    * Initiated a comprehensive review of costs across all processes and organizations from product development and procurement through service and support delivery with the goal to simplify structure, eliminate redundancies and better align operating expenses with the current business environment and strategic growth opportunities. As a part of this overall effort, Dell will reduce headcount by approximately 10 percent over the next 12 months. The reductions will vary across geographic regions, customer segments, and functions, and will reflect business considerations as well as local legal requirements.

Due to the delay in filing the annual report on Form 10-K for fiscal 2007, the company has decided to reschedule its annual meeting for stockholders, which was originally scheduled for July 20. Details for the meeting will be announced publicly as soon as they are available and will be distributed to stockholders in the notice of meeting included in the proxy materials.

Jon C. Ogg
May 31, 2007

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