RealTime IT News

Cost-Cutting, Growth Power Dell's Q1

One year after it began reorganization with the return of Michael Dell as head of his namesake company, Dell is now seeing big payoff as it expands into retail and catches the wave of growth in emerging markets.

Dell, which once sold almost entirely in the U.S., now says half its revenues come from overseas. It now has 3,500 global partners and resellers and sells its PCs in more than 13,000 retail outlets

The positive results are beginning to show in its quarterly figures. The company today announced earnings that topped Wall Street expectations. For the quarter ended December 31, 2008, Dell (NASDAQ: DELL) made $784 million, or 38 cents a share, up from 34 cents a year ago, on sales of $16.08 billion. Analysts surveyed by Thomson Financial were looking for 34 cents per share profit on sales of $15.7 billion.

Part of what is helping Dell is an improvement in operating expenses. It eliminated about 3,700 jobs in the past quarter, quite a bit more than the 2,200 jobs analysts were expecting to be eliminated.

"With the exception of some areas where we were investing heavily in sales capacity, like sales reps in APJ (Asia-Pacific/Japan) and emerging markets in Europe, you saw headcount cuts across the board and up into the senior management of the company," retiring CFO Donald Carty said on an earnings call with analysts.

Carty also noted that Dell's strongest showing was overseas. Worldwide consumer product revenue growth was 47 percent and unit growth was 20 percent.

In particular, the high-growth BRIC (Brazil, Russia, India, China) nations were up 73 percent in revenue and 58 percent in unit volume. Revenue in India grew 52 percent year over year and China was up 30 percent. BRIC now accounts for nine percent of Dell's total revenue.

Mobility products are the chief driver, with revenue growing 22 percent year over year. Storage was up 15 percent, thanks in part to Dell's acquisition of EqualLogic, services was up 13 percent and software and peripherals were up 17 percent. On the down side, server revenues rose only four percent over the same quarter last year, although unit shipments were up 21 percent, and desktop PC sales dropped five percent.

Carty, the former CEO of American Airlines, plans to retire as CFO next month and become just a member of the Dell board of directors. He will be replaced by Brian Gladden, a 20-year General Electric veteran, who assumes the CFO's office on June 13.

An acceleration of growth

Michael Dell spoke only briefly, noting that this was the first time in three years that Dell had outpaced the rest of the hardware industry. "Over time, I'm confident our broad IT goals, which include growth initiatives, will drive cash, earnings and shareholder revenue," he said.

"I'm encouraged by the acceleration in our growth," he added. "We continue to fill out our portfolio of products and services and you will see much more from us over the rest of the year, as we continue to drive shareholder value by growing our business."