Dell Sales, Profit Take a Hit in Q4

Dell on Thursday reported a 48 percent decline in fiscal fourth quarter profit compared with a year ago as the company felt the pinch from the economy. A portion of that was attributable to a one-time charge for reorganization, but most of the pain came from declining sales across all of Dell’s markets.

After the close of the stock market, the company reported a net income for the quarter ended January 30, 2009, of $351 million, or 18 cents a share, on revenue of $13.4 billion. Analysts polled by Thomson Reuters were looking for 26 cents per share.

That compares poorly to the January 30, 2008 quarter, where the company posted earnings of $679 million, or 31 cents a share on $15.9 billion in revenue.

The PC maker has been attempting to broaden its reach and make its products available in more countries, but even those countries were suffering. The company said its Americas Commercial business fell 17 percent, as did commercial sales in Europe, the Middle East and Africa.

In the quarter, the company took a pre-tax charges of $277 million, or 11 cents per share, for restructuring. It would have easily surpassed analyst expectations without those charges.

But those cost cutting efforts paid off in that the company said it cut its operating expenses by $363 million for the quarter. The company had previously set a goal of cutting $3 billion in expenses by the end of its 2011 fiscal year but now expects to save $4 billion.

All told, operating expenses were down 20 percent year over year, with $152 million in savings in Q4 alone, according to Brian Gladden, senior vice president and chief financial officer of Dell. Headcount was down 11 percent year-over-year.

Gladden told a conference call of financial investors that Dell’s direct sales model gave it an indication of a coming sales slowdown sooner than its competition, and the company was able to adjust accordingly well in advance.

“We saw the shift in early 2008 and updated our forecasts throughout the year,” he said. “We saw significant deterioration in demand in Q3, while Q4 was more linear with prior quarters, but the trend is still negative as customers continue to defer purchases. We can’t predict how long it will be, but it will be protracted.”

Next page: Windows 7 a catalyst for growth?

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He did identify Windows 7 as a potential sales booster when it ships. “We’re starting to get pretty excited about Windows 7 and think it will be an important catalyst for growth,” he told analysts on the call.

Then he said the one thing Microsoft probably doesn’t want to hear. “Having said that, it will likely push some purchases back until it comes out.”

Dell said it’s been in discussions with customers to determine their readiness for Windows 7, that their apps will work, and that there is investment protection in anything they install.

In the mean time, Dell will continue to “rapidly adjust its cost structure in the face of slowing demand,” according to Gladden. One of the areas, for example, is how they package their products. With the packaging for nearly 40 percent of both business and consumer products redesigned, Dell was able to shave about five percent off the cost of each box.

In the fourth quarter, Dell’s consumer business fell seven percent, but for the year was up 11 percent. For fiscal year 2009, unit sales were up 35 percent, but it reflects the big shift to mobility; notebook units were up 43 percent year-over-year, while desktop units were down 18 percent YoY.

On the commercial side of the house, which represented 81 percent of Dell’s business, Q4 was off two percent for the year and 18 percent for the quarter. The fast-growing BRIC nations of Brazil, Russia, India and China were down 23 percent, with Russia taking the worst dive.

The bright spot was storage. The EqualLogic purchase and other moves are paying off nicely to the tune of a seven percent annual growth. Servers, storage and services now represent more than 50 percent of gross profit, up from 44 percent at beginning of fiscal 2008.

This is where CEO Michael Dell, who was also on the call, said will be the company’s focus. “For every dollar spent on hardware, three to four dollars are spent on everything else, and that’s exactly where we’re heading for future opportunities,” he said.

Dell did not offer any guidance on the upcoming quarter or year, citing the uncertainties in the global market.

Update adds comments from the Dell conference call.

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