Dell Quarter Profit Grows on High-Margin ProductsBy Jessica Davis | Posted 2011-05-18 Email Print
Dell reported higher quarter revenues and profits for its first fiscal quarter in a bright earnings report that stood in stark contrast to rival HP's quarter earnings report.
Dell (NASDAQ:DELL) reported a one percent increase in first fiscal quarter revenue year over year and a 177 percent increase in net income as a focus on higher margin products and services boosted the company's bottom line.
Dell's results stood in stark contrast to HP's (NYSE:HPQ) results announced earlier this week. HP saw a decline in consumer PC sales and pressured margins in services prompting CEO Leo Apotheker to put a cap on hiring and refocus attention on higher margins in the services division.
Dell's revenues in the first quarter reached $15 billion and enterprise solutions and services revenue grew by 5 percent to $4.4 billion, led by a server revenue increase of 11 percent.
And significantly, Dell said it expected next quarter's revenues to see mid-single digit growth, slightly above its normal, sequential seasonal growth of 2 to 3 percent.
Dell attributed much of the first quarter's revenue and profit improvement to the strength of its commercial enterprise business, bolstered by strategic acquisitions made over the past few years in management, services, security and cloud offeringsDell has also announced plans to invest $1 billion this fiscal year to deliver new solutions, build cloud capabilities and add significant numbers of new engineering, development and solutions-based sales resources in the U.S. and globally to support its enterprise solutions and services focus, including the launch of vStart to speed and simplify the provisioning of virtual machines.
Dell also saw improved profitability in end-user computing, the company said, including client desktop and laptop offerings. This is one of the areas where HP's results fell apart earlier in the week. Dell said the improved performance comes from "a higher-value product portfolio, good cost management, better sales execution and a significantly improved supply chain."
Other highlights in the quarter include the following:
- Revenue for Dell's commercial business improved 3 percent to $12 billion, with record profitability. Commercial services revenue increased 6 percent.
- Enterprise solutions and services revenue grew 5 percent to $4.4 billion in the quarter and represents 30 percent of Dell’s consolidated revenue.
- Servers and networking revenue increased 11 percent.
- Dell-owned storage technology, which includes Compellent, EqualLogic, PowerVault and DX Object Storage, grew 11 percent in the quarter, offset by declines in EMC storage. The company’s overall storage business revenue declined 13 percent.
- Dell Services revenue grew 5 percent to $2 billion. Transactional support and outsourcing revenue were up 5 percent and 3 percent, respectively, while the project services business grew 13 percent.
- Large Enterprise had record operating income of $504 million, or 11.3 percent of revenue on $4.5 billion of revenue, up 5 percent from a year ago. Enterprise solutions and services revenue was $1.8 billion, a 2 percent increase. Revenue from desktop and laptop computers grew 7 percent as the client refresh among large corporate accounts continued.
- Public revenue was $3.8 billion, a 2 percent decline resulting from weaker spending on desktop and laptop products.
- Small and Medium Business had record profit in the quarter with revenue up 7 percent to $3.8 billion, a two-year high driven by strong demand across all products and services. Consumer revenue was $3 billion, down 7 percent, as demand was softer than expected. However, profit improved with operating income of $136 million, or 4.5 percent of revenue due to a simplified brand structure that includes a shift to higher value products, and structural and component cost improvements in the supply chain.