PRELIMINARY EARNINGS PER SHARE OF $0.32
Quarter Highlighted by Improved Growth and Profitability Across All Regions and Strength in Enterprise Products
Dell today reported preliminary results for its second quarter of fiscal year 2008, with revenue of $14.8 billion, operating income of $896 million and earnings per share of $0.32. Strength in enterprise products and services, improved average selling prices and favorable component costs drove profitability in the quarter. Cash and marketable securities were $13.8 billion at the end of the quarter. “We continue to invest in company initiatives that align our products and services around customers’ needs in order to drive long-term, sustainable performance and extend our position as a trusted technology partner,” said Chairman and CEO Michael Dell. “While our results demonstrate we’ve made progress against our goals, we are still in the early stages of transforming our company’s structure, costs and operations.”
Operating Profit Impacted by Higher Expenses
Several factors adversely impacted operating expenses in the quarter, including $102 million, or $0.03 per share, in incremental compensation expense related to payments for expired in-the-money stock options; $59 million, or $0.02 per share, in costs associated with the Audit Committee’s investigation into certain accounting and financial reporting matters; and higher headcount and associated costs related to investments in sales and customer support.
As the company continues to implement its transformation program, the priority is to drive profitable growth while reducing operating expenses as a percentage of revenue. The company expects to accomplish this by improving front-line productivity, reducing headcount where appropriate and investing in infrastructure and key growth initiatives. The company is focused on the optimal alignment of resources, coupled with scaling via growth initiatives and cost reduction, and continues to pursue reductions in headcount.
Transformation Update
Several actions during the second quarter reflected Dell’s ongoing strategy to simplify IT for its customers by reducing the cost, time and complexity of managing information technology, including:
· The launch of the VostroTM brand of notebook and desktop computers, the first product line designed for the unique needs of small businesses, featuring simple-to-use tools that address problems such as data back-up and PC performance and health, and dedicated customer support. Vostro products do not include “trialware” and feature specialized networking support for customers who don’t have dedicated IT staffs.
· The introduction of our new flagship ultra-portable notebook, the XPS™ M1330, the world’s thinnest 13.3-inch notebook, featuring cutting-edge design elements and a durable magnesium alloy chassis with brushed aluminum accents. In addition, new Inspiron notebook systems feature mobile broadband, widescreen displays, built-in webcams and eight color choices.
· Agreements to acquire ASAP Software, a leading software solutions and licensing services provider; privately-held SilverBack Technologies, Inc., a service delivery platform provider for remote monitoring and management of information technology infrastructure such as servers, storage, networks, desktops and notebooks; and Zing Systems Inc., a consumer technology and services company that focuses on always-connected audio and entertainment devices.
· Announced plans to reach more customers globally via indirect distribution channels through partnerships with Wal-Mart and Sam’s Clubs in North and South America, Bic Camera Inc. of Japan and Carphone Warehouse in the United Kingdom.
Product Performance Driven by Continued Focus on Server and Storage Solutions
Server revenue in the second quarter was $1.6 billion. For Q2, Dell was again No. 1 in the United States in server units shipped with 32.7 percent share. Storage revenues were $0.6 billion. During the quarter, Forrester Consulting1 issued a report that demonstrated how Dell’s new IT simplification solutions, which include server consolidation and virtualization solutions, increased the ROI benefits for one of Dell’s customers.
Dell also announced a partnership with Emerson Network Power and its Liebert power and cooling business to help customers lower their datacenter power and cooling requirements by up to 42 percent and increase systems performance by up to 80 percent compared to prior generations of Dell servers.
Revenue from mobility products was $3.9 billion while desktop revenue was $5.0 billion. During the quarter, the company ran a higher-than-normal product backlog, driven by better-than-expected demand for the new Inspiron and XPS color notebooks coupled with supply constraints for several colors, and a tightening in supply of certain flat-panel displays. The company believes the supply environment will improve in the second half of the year. Enhanced services revenue was $1.3 billion and software and peripherals revenue was $2.4 billion.
Company Outlook
The company is focused on IT simplification for its customers, including transforming its business to provide better value to customers while expanding its growth opportunities. These efforts set the stage for a more sustainable balance of liquidity, profitability and growth. During this period of transformation, operating results will vary as the company focuses on making investments and realigning the business. Near-term results could be adversely impacted by a slower decline in component costs in the second half of the year. The company does not expect to resume its share repurchase program until after it has filed its fiscal year 2007 Form 10-K, which is expected to occur by the first week of November.
Preliminary Results Subject to Change
As previously announced on Aug. 16, 2007, Dell will restate its previously issued financial statements for fiscal 2003, 2004, 2005 and 2006 (including the interim periods within those years), and the first quarter of fiscal 2007. In addition, the company has not filed its Forms 10-Q for the second and third quarters of fiscal 2007 and the first quarter of fiscal 2008 or its Form 10-K for fiscal 2007. Consequently, all financial results described in this press release, as well as the previously announced financial results for the second, third and fourth quarters of fiscal 2007 and first quarter of 2008, should be considered preliminary, and are subject to change to reflect any necessary corrections or adjustments, or changes in accounting estimates, that are identified prior to the time the company completes the restatement and these filings.
NASDAQ Listing Update
As previously announced, on Aug. 17, 2007, the Board of Directors of The NASDAQ Stock Market issued its decision to give the company until Nov. 12, 2007 to file its past due periodic reports and regain compliance with NASDAQ’s listing requirements. Dell previously announced that it expects to file its past due periodic reports by the first week of November.
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