Dell Reports Strong Second Quarter Financial Results Driven by Enterprise Solutions and Services
Enterprise solutions and services revenue up 4 percent to $4.6 billion
Operating income for the first half of FY12 up more than 50 percent
Earnings per share of 48 cents (GAAP) and 54 cents (non-GAAP) up 71 and 69 percent, respectively
Cash flow from operations in the quarter a record $2.4 billion, more than $5.2 billion for last four quarters
Dell's investment in differentiated enterprise solutions and services continued to drive substantial gains in the company's profitability in the fiscal second quarter as operating income rose significantly on a 1 percent revenue increase.
Dell's mid-market design focus on next-generation computing solutions and intelligent data management; services, security and cloud; and end-user computing is driving the shift in the company's mix to a higher-value portfolio and resulting in sustainable, improved results. The company's GAAP operating income of 7.7 percent of revenue year to date and 7.3 percent of revenue over the past four quarters is in line with its long-term value creation framework goal of more than 7 percent.
Growth in enterprise businesses highlighted the quarter. Solid demand for Dell's server, storage and services portfolio reflects increasing customer preference for the company's highly capable, affordable and flexible solutions and services. Dell continues to make prudent investments to develop and acquire industry-leading systems management, storage, security and networking intellectual property. Dell is also increasing investment levels in sales and go-to-market capabilities. These investments contributed to the solid operating income and strong cash-flow generation in the quarter and first half.
Revenue in the quarter was $15.7 billion, up 1 percent over last year and 4 percent sequentially.
GAAP earnings per share was 48 cents, up 71 percent; non-GAAP EPS was 54 cents, up 69 percent. Vendor settlements resulted in approximately $70 million in benefit in the quarter that increased non-GAAP gross margins 50 basis points and non-GAAP earnings per share by 4 cents.
GAAP operating income was $1.1 billion, or 7.3 percent of revenue. Non-GAAP operating income was $1.3 billion, or 8.5 percent of revenue.
Cash flow from operations was $2.4 billion for the quarter and $5.2 billion over the last four quarters. Dell ended the quarter with a record high $16.2 billion in cash and investments and repurchased $1.1 billion in stock in the quarter.
Information about Dell's use of non-GAAP financial information is provided under "Non-GAAP Financial Measures" below. Non-GAAP financial information excludes costs related primarily to the amortization of purchased intangibles, severance and facility-action costs, certain settlement costs and acquisition-related charges. All comparisons in this press release are year over year unless otherwise noted.
Revenue for Dell's commercial business was $12.8 billion, up 6 percent sequentially and 1 percent from a year ago.
Enterprise solutions and services revenue grew 4 percent to $4.6 billion in the quarter and represents 35 percent of Dell's commercial revenue. Servers and networking revenue increased 9 percent year over year.
Dell Services revenue grew 6 percent to $2 billion. Dell's total value of new services contracts signed in the last quarter is $1 billion and $1.3 billion year-to-date; and services backlog is now $15.4 billion up 11 percent from a year ago. Demand for Dell SecureWorks managed services offerings continued to expand, with more than 200 customers added during the quarter.
Dell-owned storage technology grew 15 percent in the quarter. The benefits of Dell's mid-market design focus are evident in the success of EqualLogic, which continues to be a highly profitable line of storage products . In addition, revenue in the company's Compellent storage business grew 97 percent sequentially, after closing the acquisition in Q1.
The launch of Dell EqualLogic FS7500 during the quarter brings the first scale-out NAS and unified storage capabilities to the Dell EqualLogic platform. The FS7500 provides up to 10 times more file share scalability than legacy unified storage offerings. It is the industry's only scale-out solution optimized for mid-sized and smaller deployments. Dell also announced its next-generation Dell EqualLogic software, which includes enhanced, enterprise-class storage capability and automated load balancing.
Dell KACE, which added 600 new customers during Q2, also launched a significant addition to its portfolio of systems management solutions. The M300 Asset Management Appliance is the first desktop-management product designed specifically for small businesses with 20–200 employees, and demonstrates Dell's commitment to mid-market design.
Dell expects to close its acquisition of Force 10 Networks in the third quarter. Force10 Networks is a leader in high-performance data center networking capabilities that complement and extend Dell's data center solutions portfolio, enabling the company to address a broader range of customer needs with Dell intellectual property.
Dell's core business remains healthy. Revenue for client products – desktop and laptop computers – was up sequentially 6 percent to $8.5 billion driven by seasonal strength in Public.
Business Units and Regions:
Large Enterprise had $4.6 billion of revenue, up 1 percent from a year ago on strong demand for servers and services. Operating income was $448 million, or 9.8 percent of revenue. Enterprise solutions and services revenue was $1.9 billion, a 3 percent sequential increase. Revenue from client products grew 1 percent for the year and 4 percent sequentially.
Public had record operating income of $484 million or 10.9 percent of revenue. Revenue was $4.5 billion, up 18 percent sequentially and down 3 percent for the year. Enterprise solutions and services revenue was up 7 percent sequentially. Client product revenue increased 34 percent sequentially.
Small and Medium Business had revenue of $3.7 billion, up 5 percent. Operating income was $404 million or 10.9 percent of revenue. Enterprise solutions and services revenue was up 16 percent, driven by a gain in servers of 17 percent; services of 17 percent, and storage of 11 percent.
Consumer revenue was $2.9 billion, a 1 percent increase, with revenue for laptops and desktops up 4 percent. Operating income was $73 million or 2.5 percent of revenue.
Growth countries outside of the U.S. and Canada, Western Europe and Japan increased revenue 14 percent over the previous year and now account for 28 percent of Dell's total revenue. Specifically, India and China were up 21 and 20 percent, respectively.
Michael Dell, chairman and chief executive officer: "We continue to see great momentum in the high-growth areas of our business, which is a direct reflection of the discipline and strong execution our global Dell team is applying to help solve real-world challenges for our customers. We're creating efficiency across every step of the IT value chain and ultimately enabling all customers-from home users to large businesses and government organizations-to achieve the outcomes that matter most to them."
Brian Gladden, chief financial officer: "Our results for the first half of the fiscal year reflect our commitments and are enabling us to accelerate the reshaping of our portfolio while delivering substantially higher operating income. We're maintaining our focus on developing higher-value solutions and services to drive stronger profitability and smartly manage a balance of growth, increased operating income and cash flow."
Dell is focused on delivering efficient IT solutions that provide both efficiency and flexibility, as the company aligns its business with large and faster growing markets, and creates a broader base of recurring revenue streams with higher profit potential. Based on consistent execution in the first half of the fiscal year, the continued management of lower-margin business and a positive mix shift to Dell intellectual property and higher-valued products, Dell is raising its non-GAAP operating income growth expectation for FY 2012 to 17-23 percent year-over-year from 12-18 percent. Based on strategic decisions to redirect resources from lower- to higher-value solutions and a more uncertain demand environment, the company also is revising its full-year revenue-growth outlook to 1-5 percent from the previous range of 5-9 percent. In the third quarter, Dell expects to see revenue roughly flat relative to Q2, which is in line with seasonality over the past two years.
Dell Inc. (NASDAQ: DELL) listens to customers and delivers innovative technology and services that give them the power to do more. For more information, visit www.dell.com. As previously announced, the second quarter a nalyst call with Michael Dell, chairman and CEO; Brian Gladden, CFO; and Brad Anderson, senior vice president, Enterprise Solutions Group, will be webcast live today at 4 p.m. CDT and archived at www.dell.com/investor. To monitor highlighted facts from the analyst call, follow on the Dell Investor Relations Twitter account at: http://twitter.com/dellshares or hashtag #DellEarnings. To communicate directly with Dell, go to www.dell.com/dellshares.