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Dell ends 2006 horror with $1bn drop in PC sales

'We will be known again'

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A sedate Dell posted fourth quarter results that didn't horrify investors even though its PC and notebook sales fell in dramatic fashion.

Dell reported $14.4bn in revenue – down from $15.2bn in the same period last year. The company's net income came in at $673m, which marks quite the fall from last year's haul of $1bn. Officials declined to face off against financial analysts and discuss the results in a conference call as is customary, primarily because Dell counts its fourth quarter results as "preliminary" due to a pair of investigations into its past accounting.

Reinstated CEO Michael Dell did, however, manage a somber statement recapping the quarter.

"We are disappointed with the company's results, but what matters is our future plan of action," he said. "We are systematically moving to increase efficiencies, improve execution and transform the company.

"Our business model will become more aligned with the needs of our customers, which will improve their experience and yield improved growth and profitability for the long-term."

Dell has plenty of work ahead to try and correct slumping PC and notebook sales.

Dell's desktop revenue plummeted to $4.6bn from $5.6bn in the same period last year. Laptop sales dropped as well by two per cent to $3.8bn even though shipments increased two per cent. The laptops tend to be higher-margin products and growth in the notebook area is key to Dell's overall financial health.

Dell's server revenue rose to $1.5bn from $1.4bn last year, while storage revenue came in flat at $600m. Services revenue rose a tad to $1.5bn from $1.4bn, and software and peripherals revenue held steady at $2.4bn.

The modest server growth and flat storage sales prove worrying as they've been two of Dell's faster growing businesses over the past few years.

Take the onus out of bonus

Dell employees have been punished for what management sees as a less than impressive effort. The company saved $184m during the quarter by cutting back on bonuses "due to (Dell's) failure to achieve its operating targets for fiscal 2007".

The company also noted that it shelled out $89m during the quarter to deal with its ongoing accounting issues with both the US Securities and Exchange Commission and the State of New York peeking into Dell's books. Even lawyers' bills are bigger in Texas.

The hardware maker must be pleased to put calendar 2006 and fiscal year 2007 behind it. Over the past few months Dell pushed out CEO Kevin Rollins, re-arranged much of its executive ranks, suffered from declining PC sales, faced the accounting probes, fell behind rivals in the server market, copped to flaming notebooks and admitted to serious customer service issues.

Thus far, Dell has made what appear to be cosmetic fixes to these problems by spending more money on customer service and improving its web site.

Real change will only come when Dell finds a way to tweak the Direct Model that served it well for so many years. The direct system no longer seems capable of being Dell's only answer to stiffer competition.

"We won't achieve our goals overnight, but we will achieve our goals," CEO Dell said. "We will be known again for strong operating and financial performance and a great experience for our customers. But it will take time to realize the future benefits of the improvements we are making today."

Investors reacted to the fourth quarter results by knocking close to two per cent off Dell's share price in the after-hours markets, at the time of this report.

Dell declined to provide a first quarter revenue forecast. ®

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