Enterprise Product Sales and International Revenue Growth Highlight Dell's Third Quarter
Strong Revenue Increases Reported for Storage, Servers and Enhanced Services
Round Rock, Texas, November 10, 2005 - Continued successful application of Dell's unique direct business model and solid sales increases in enterprise products and services led the company to record revenue and units in fiscal third quarter 2006.
Dell had record shipments of 9.2 million units worldwide in the quarter. The quarter was led by a 36 percent increase in revenue from enhanced services to $1.2 billion, a 35 percent increase from storage and a 16 percent increase from servers.
Sales outside of the United States rose 20 percent from the same period a year ago and accounted for 40 percent of Dell's worldwide revenue in the quarter. Asia Pacific and Japan had particularly strong revenue growth of 20 percent year-over-year, led by rapid expansion in China with unit growth of 46 percent.
Company revenue for the period ended Oct. 28 was $13.9 billion, a company record and up 11 percent year-over-year. Dell's earnings per share was 39 cents on a non-GAAP basis, up 18 percent from a year ago. Reported GAAP third-quarter earnings was 25 cents per share, reflecting a previously announced one-time charge of $442 million. The charge consisted of the cost of servicing certain OptiPlex systems that include a vendor part that failed to perform to Dell's specifications, workforce realignment, product rationalizations and excess facilities.
"Our operating performance was again exceptional by any comparable measure," Kevin Rollins, Dell's chief executive officer, said. "However, we hold ourselves to higher standards."
As such, Mr. Rollins said, Dell has made recent moves that further streamline several parts of its business.
"We're always looking for better ways to improve the efficiencies of our business," he said. "Customers in every major market of the world are significantly and increasingly choosing to do business directly with Dell, so we are able to make these changes from a position of strength. The changes will reduce complexity and cost, improve customer value and satisfaction, and encourage strong profitable growth in all products, segments and regions."
Cash flow from operations for the quarter was $1.1 billion and $3.3 billion year-to-date. Dell ended the quarter with $12.3 billion in cash and investments. Dell spent $1.4 billion to repurchase 41 million shares during the third quarter and year-to-date has repurchased almost 140 million shares.
The company expects fourth quarter revenue of $14.6 to $15.0 billion and earnings per share of $0.40 to $0.42. The company plans to repurchase at least $1.7 billion in stock during the fourth quarter.
Product and Service Performance
Dell continued to hold the No. 1 worldwide share position for computer shipments. Globally, the company had a 21 percent increase in server shipments year-over-year. Dell's server offerings were enhanced during the quarter with the addition of multi-core Intel Xeon technology in the single-, dual- and four-socket server and workstation product lines, delivering up to 51 percent greater performance while maintaining a common system image for both single- and multi-core systems.
Revenue for storage products, up 35 percent year-over-year, grew at a rate of more than three times that of the industry. Demand for server and storage products also helped drive revenue growth for Dell's enhanced services of 36 percent year-over-year. Dell continues to make investments in its service operations and expand its offerings to continue improving support for all customers. In a recent survey of IT executives by CIO Magazine, Dell was rated No. 1 among leading vendors for providing "impeccable customer service."
With the increasing flexibility of wireless Internet access, more customers are moving from desktop platforms to wireless notebook computers. Sales of Dell's mobility products in the quarter continued to reflect the shift as shipments increased 38 percent year-over-year. Software and peripherals revenue grew 25 percent year-over-year, driven by imaging and displays. Dell's laser shipments doubled year-over-year, led by growth in color laser printer shipments. Shipments of replacement ink and toner cartridges also nearly doubled year-over-year.
Dell's global growth continued in all regions in the third quarter. Revenue in Europe, Middle East and Africa (EMEA) was up 25 percent year-over-year outside the United Kingdom and 19 percent for the entire region. The U.K. experienced less revenue growth because of slower spending in its public sector. The region had growth across all product categories and a 72 percent year-over-year revenue increase in enhanced services. Mobility product shipments increased 48 percent year-over-year. Germany had revenue growth of 25 percent and France had revenue growth of 26 percent.
Asia Pacific and Japan had significant growth year-over-year in Dell's most strategic product categories. Revenue for enhanced services in the region increased 71 percent in the quarter. Mobility products revenue increased 26 percent year-over-year on the strength of 55 percent year-over-year growth in unit shipments. China, a key market for Dell in the region, had revenue growth of 29 percent on unit shipment growth of 46 percent year-over-year, led by the home and small business sector.
Storage revenue was up 44 percent year-over-year in the Americas to lead enterprise growth. Servers and networking revenue increased 16 percent and enhanced services increased 23 percent year-over-year in the region. Growth in sales of servers, storage and mobility products helped to drive an overall revenue increase of 22 percent year-over-year for Americas International. Growth in the Americas was affected by a decline in the U.S. Consumer business.
Dell Inc. (NASDAQ: DELL) is a trusted and diversified information-technology supplier and partner, and sells a comprehensive portfolio of products and services directly to customers worldwide. Dell, recognized by Fortune magazine as America's most admired company and No. 3 globally, designs, builds and delivers innovative, tailored systems that provide customers with exceptional value. Company revenue for the last four quarters was $54.2 billion. For more information about Dell and its products and services, visit www.dell.com.
Statements in this press release that relate to future results and events (including statements about Dell's anticipated financial and operating performance) are forward-looking statements based on Dell's current expectations. Actual results in future periods could differ materially from those projected in these forward-looking statements because of a number of risks and uncertainties including: general economic, business and industry conditions; the level and intensity of competition in the technology industry and the pricing pressures that have resulted; local economic and labor conditions, political instability, unexpected regulatory changes, trade protection measures, tax laws and fluctuations in foreign currency exchange rates; the ability to accurately predict product, customer and geographic sales mix; the ability to timely and effectively manage periodic product transitions; reliance on third-party suppliers for product components, including dependence on several single-source supplier relationships; the ability to effectively manage operating costs; the failure to attract and retain qualified personnel; the level of demand for the
products and services Dell offers; the ability to manage inventory levels to minimize excess inventory, declining inventory values and obsolescence; and the effect of armed hostilities, terrorism, natural disasters and public health issues on the economy generally, on the level of demand for Dell's products and services and on Dell's ability to manage its supply and delivery logistics in such an environment. Additional discussion of these and other factors affecting Dell's business and prospects is contained in Dell's periodic filings with the Securities and Exchange Commission.
Use of Non-GAAP Financial Information
This press release includes additional non-GAAP measures of gross margin, operating expenses, operating income, income before income taxes, income taxes, net income and earnings per share. These non-GAAP measures have been adjusted to exclude costs of servicing certain OptiPlex systems, workforce realignment, product rationalizations and excess facilities charges recorded in the third quarter of fiscal year 2006. These non-GAAP measures also exclude the income tax benefit related to the repatriation of earnings under the American Jobs Creation Act recorded in the second quarter of fiscal year 2006. These adjustments to Dell's GAAP results are made with the intent of providing both management and investors a more complete understanding of the underlying operational results and trends and Dell's marketplace performance. Management believes that these additional non-GAAP measures provide a basis for which meaningful year-over-year operating performance comparisons can be made. The presentation of this additional information is not meant to be a substitute for financial statements prepared in accordance with generally accepted accounting principles in the United States. See Itemized Reconciliation between Net Income on a GAAP and non-GAAP basis for the period ended October 28, 2005 in the table attached to the press release.
Consolidated statements of income, financial position and cash flows follow.
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