Arik Hesseldahl

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Dell Earnings Miss Targets, Sales Beat Expectations

arrows missing targetDell’s quarterly results just crossed the wires, and as expected, they’re below what analysts had projected before word got around that the company was about to miss those expectations and miss badly.

Earnings on a per-share basis were 21 cents on sales of $14.07 billion. That’s versus a pre-leak consensus of 35 cents on sales of $13.5 billion. Sales were obviously better than expected, but profits were substantially lower.

On a year-over-year basis, sales fell 2 percent. Profits on a non-GAAP basis fell 51 percent. The fall was led by end-user-computing, Dell’s mainstream PC business. Sales there fell 9 percent, and the unit’s operating margin fell 65 percent. That’s where the pain point is.

Enterprise sales grew by about 10 percent to $3.1 billion. Services revenue grew to about 2 percent. Software sales were $295 million but that unit ran at an operating loss.

Here’s Dell’s original announcement:

Dell Reports Fiscal Year 2014 First Quarter Financial Results

Revenue of $14.1 billion
Enterprise Solutions, Services and Software revenue up 12 percent
GAAP earnings of $0.07 per share; non-GAAP earnings of $0.21 per share

ROUND ROCK, Texas–(BUSINESS WIRE)–

Dell today announced fiscal 2014 first quarter results, with revenue of $14.1 billion, as the company grew revenue from Enterprise Solutions, Services and Software 12 percent year over year to $5.5 billion, or 8 percent growth, excluding the acquisition of Quest Software. Pricing adjustments that affected gross margins and continued acquisition-related costs in the quarter resulted in GAAP earnings of $0.07 per share and non-GAAP earnings of $0.21 per share.

“We made progress in building our enterprise solutions capabilities in the first quarter and are confident in our strategy to be the leading provider of end-to-end scalable solutions,” said Brian Gladden, Dell chief financial officer. “In addition, we have taken actions to improve our competitive position in key areas of the business, especially in end-user computing, and it has affected profitability. We’ll also continue to make important investments to support our strategy and drive long-term profitability.”

Results

Revenue in the quarter was $14.1 billion, a 2 percent decrease from the previous year.

GAAP operating income for the quarter was $226 million, or 1.6 percent of revenue. Non-GAAP operating income was $590 million, or 4.2 percent of revenue.

GAAP earnings per share in the quarter was 7 cents, down 81 percent from the previous year; non-GAAP EPS was 21 cents, down 51 percent.

Cash used in operations in the quarter was $39 million. On a trailing, 12-month basis, Dell has generated $3.4 billion in cash flow. Dell ended the quarter with $13.2 billion in cash and investments.

dellq413
 
Information about Dell’s use of non-GAAP financial information is provided under “Non-GAAP Financial Measures” below. Non-GAAP financial information excludes amortization of purchased intangibles, severance and facility-actions, acquisition-related charges, costs incurred in Fiscal 2014 related to Dell’s proposed merger, and other items. All comparisons in this press release are year over year unless otherwise noted.

Operating Segments Summary:
As previously announced, Dell has realigned its global operating segments to its end-to-end solutions portfolio in the Enterprise Solutions Group, Dell Services, Dell Software Group, and End User Computing Group.

Enterprise Solutions Group revenue was $3.1 billion, a 10 percent increase. Operating income for the quarter was $136 million, a 71 percent increase. Dell server and networking revenue increased 16 percent as the company gained share in the calendar first quarter. Dell networking continued to deliver strong growth, with a 24 percent revenue increase, including a 46 percent growth in the company’s Force10 business. Dell storage revenue declined 10 percent.

Dell Services revenue grew 2 percent to $2.1 billion driven by an 11 percent increase in revenue for infrastructure, cloud and security services. Support and deployment revenue increased 2 percent and applications and business process services declined 15 percent. Operating income was $370 million, a 10 percent increase.

Dell Software revenue was $295 million, resulting in an operating loss. Dell enhanced its software capabilities during the quarter, investing in additional sales capability and research and development. Consistent with the company’s business strategy when it acquired Quest Software, this business is on track to be accretive to earnings in the first quarter of fiscal year 2015.

End User Computing revenue was $8.9 billion in the quarter, a 9 percent decrease. Operating income for the quarter was $224 million, a 65 percent decrease. Dell desktop and thin-client revenue declined 2 percent, mobility revenue declined 16 percent, and software from third parties and peripherals revenue declined 6 percent.

Company Outlook:
Given the company’s announcement on Feb. 5 of a definitive merger agreement to take Dell private, the company is not providing an outlook for the fiscal 2014 second quarter.


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