Dell Reports Second Quarter Financial Results

Special Note on Forward Looking Statements:

Statements in this press release that relate to future results and events (including statements about Dell’s future financial and operating performance, trends relating to mix shift, macroeconomic challenges, effects of our acquisitions and success relating to strategic transformation, as well as the financial guidance with respect to revenue and non-GAAP earnings per share) are forward-looking statements and are based on Dell's current expectations. In some cases, you can identify these statements by such forward-looking words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “confidence,” “may,” “plan,” “potential,” “should,” “will” and “would,” or similar expressions. Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements because of a number of risks, uncertainties and other factors, including: intense competition; Dell’s reliance on third-party suppliers for product components, including reliance on several single-sourced or limited-sourced suppliers; Dell’s ability to achieve favorable pricing from its vendors; weak global economic conditions and instability in financial markets; Dell’s ability to manage effectively the change involved in implementing strategic initiatives; successful implementation of Dell’s acquisition strategy; Dell’s cost-efficiency measures; Dell’s ability to effectively manage periodic product and services transitions; Dell’s ability to deliver consistent quality products and services; Dell’s ability to generate substantial non-U.S. net revenue; Dell’s product, customer, and geographic sales mix, and seasonal sales trends; the performance of Dell’s sales channel partners; access to the capital markets by Dell or its customers; weak economic conditions and additional regulation affecting our financial services activities; counterparty default; customer terminations of or pricing changes in services contracts, or Dell’s failure to perform as it anticipates at the time it enters into services contracts; loss of government contracts; Dell’s ability to obtain licenses to intellectual property developed by others on commercially reasonable and competitive terms; infrastructure disruptions; cyber-attacks or other data security breaches; Dell’s ability to hedge effectively its exposure to fluctuations in foreign currency exchange rates and interest rates; expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other compliance matters; impairment of portfolio investments; unfavorable results of legal proceedings; Dell’s ability to attract, retain, and motivate key personnel; Dell’s ability to maintain strong internal controls; changing environmental and safety laws; the effect of armed hostilities, terrorism, natural disasters, and public health issues; and other risks and uncertainties discussed in Dell’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for its fiscal year ended February 3, 2012. In particular, Dell’s expectations with regard to revenue and non-GAAP earnings per share for the full fiscal year ending Feb. 1, 2013 assume, among other matters, that there is no significant decline in economic conditions generally or demand growth specifically, that macroeconomic challenges do not materialize into more significant economic difficulties, no significant change in product mix patterns, and continued geographic customer demand trends. Dell assumes no obligation to update its forward-looking statements.

Consolidated statements of income, financial position and cash flows and other financial data follow.

Dell is a trademark of Dell Inc. Dell disclaims any proprietary interest in the marks and names of others.

 
DELL INC.
Condensed Consolidated Statement of Income and Related Financial Highlights
(in millions, except per share data and percentages)
(unaudited)
     
Three Months Ended % Growth Rates
August 3,
2012
  May 4,
2012
  July 29,
2011
Sequential   Yr. to Yr.
Net revenue  
Products $ 11,403 $ 11,423 $ 12,610 0 % (10 )%
Services, including software related 3,080   2,999   3,048   3 % 1 %
 
Total net revenue 14,483   14,422   15,658   0 % (8 )%
Cost of net revenue
Products 9,280 9,330 9,935 (1 )% (7 )%
Services, including software related 2,065   2,025   2,198   2 % (6 )%
 
Total cost of net revenue 11,345   11,355   12,133   0 % (6 )%
Gross margin 3,138 3,067 3,525 2 % (11 )%
Operating expenses
Selling, general, and administrative 1,976 2,009 2,174 (2 )% (9 )%
Research, development, and engineering 261   234   205   12 % 27 %
Total operating expenses 2,237   2,243   2,379   0 % (6 )%
Operating income 901 824 1,146 9 % (21 )%
Interest and other, net (63 ) (32 ) (55 ) (101 )% (16 )%
Income before income taxes 838 792 1,091 6 % (23 )%
Income tax provision 106   157   201   (32 )% (47 )%
 
Net income $ 732   $ 635   $ 890   15 % (18 )%
 
Earnings per share:
Basic $ 0.42   $ 0.36   $ 0.48   17 % (13 )%
Diluted $ 0.42   $ 0.36   $ 0.48   17 % (13 )%
Weighted average shares outstanding:
Basic 1,747 1,759 1,858 (1 )% (6 )%
Diluted 1,753 1,774 1,871 (1 )% (6 )%
 

Percentage of Total Net Revenue:

Gross margin 21.6 % 21.3 % 22.5 %
Selling, general, and administrative 13.6 % 13.9 % 13.9 %
Research, development, and engineering 1.8 % 1.7 % 1.3 %
Operating expenses 15.4 % 15.6 % 15.2 %
Operating income 6.2 % 5.7 % 7.3 %
Income before income taxes 5.8 % 5.5 % 7.0 %
Net income 5.1 % 4.4 % 5.7 %
Income tax rate 12.7 % 19.8 % 18.4 %
 

Net Revenue by Product Category:

Servers and Networking $ 2,332 $ 2,017 $ 2,054 16 % 14 %
Storage 435 444 502 (2 )% (13 )%
Services 2,106 2,071 2,036 2 % 3 %
Software and Peripherals 2,338 2,386 2,569 (2 )% (9 )%
Mobility 3,870 4,236 4,761 (9 )% (19 )%
Desktop PCs 3,402   3,268   3,736   4 % (9 )%
Consolidated net revenue $ 14,483   $ 14,422   $ 15,658   0 % (8 )%
 

Percent of Total Net Revenue:

Servers and Networking 16 % 14 % 13 %
Storage 3 % 3 % 3 %
Services 15 % 14 % 13 %
Software and Peripherals 16 % 17 % 16 %
Mobility 27 % 29 % 31 %
Desktop PCs 23 % 23 % 24 %
 

Net Revenue by Global Segment: (1)

Large Enterprise $ 4,536 $ 4,436 $ 4,677 2 % (3 )%
Public 4,065 3,466 4,329 17 % (6 )%
Small and Medium Business 3,258 3,477 3,306 (6 )% (1 )%
Consumer 2,624   3,043   3,346   (14 )% (22 )%
Consolidated net revenue $ 14,483   $ 14,422   $ 15,658   0 % (8 )%
 

Percentage of Total Net Revenue: (1)

Large Enterprise 31 % 31 % 30 %
Public 28 % 24 % 28 %
Small and Medium Business 23 % 24 % 21 %
Consumer 18 % 21 % 21 %
 

Consolidated Operating Income: (1)

Large Enterprise $ 433 $ 402 $ 460
Public 379 271 466
Small and Medium Business 382 389 380
Consumer 14   32   103  
Segment operating income 1,208 1,094 1,409
Broad based long-term incentives (85 ) (84 ) (81 )
Amortization of intangible assets (150 ) (110 ) (95 )
Severance and facility actions and acquisition-related costs (72 ) (76 ) (87 )
Consolidated operating income $ 901   $ 824   $ 1,146  
 

Note: Percentage growth rates and ratios are calculated based on underlying data in thousands.

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