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Dell busts through $60bn barrier

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PC and server maker Dell has reached its long-time goal of breaking through the $60bn revenue barrier. Now what is it going to do?

In the fourth quarter of fiscal 2011, ended January 28, Dell's revenues hit $15.7bn, rising 5 per cent year-on-year. Product sales rose by 5 per cent to $12.75bn, and services revenues were up 5 per cent as well, to $2.9bn. Net income nearly tripled to $927m in fiscal Q4, due in large part to cost controls on products and services alike, including putting the squeeze on the supply chain and also getting lower component costs (those are two separate ideas), and maintaining some discipline on discounting during the year-end corporate and holiday consumer-buying cycles.

For the full year, Dell had product sales of just a hair over $50bn, up 14 per cent, and services revenues rose by 25 per cent to $11.5bn, as the $3.9bn acquisition of Perot Systems boosted numbers earlier in the year. Total revenues for the fiscal 2011 year came to $61.5bn, an increase of 16 per cent over the prior year. Net income rose by 84 per cent to $2.63bn.

On the product side of the house, the big growth engine in the fourth quarter was servers and networking, with revenues rising 16 per cent to $2.09bn against unit shipment growth of only 6 per cent. Rack servers and blade servers both had 26 per cent revenue growth.

Despite the acquisition of EqualLogic and Compellent, and because of its falling-out with EMC in the wake of those acquisitions relating to its Clariion partnership, Dell's storage sales actually fell 4 per cent to $574m in Q4. EqualLogic array sales were up 49 per cent in Q4 and up 62 per cent for the full fiscal year, however, so blame PowerVault and Clariion for the declines in storage.

In a conference call with Wall Street analysts, Dell chief financial officer Brian Gladden said that the storage business was in transition from being a reseller to being a storage provider, and while revenues have taken some hits, gross margins for storage have more than doubled because of this shift. And Dell cofounder and CEO Michael Dell said in the call that Dell-branded storage now represented about two-thirds of storage revenues and 80 per cent of storage profits.

Overall enterprise solutions and services – the bits of Dell dedicated to the data center and data closet – grew by 7 per cent to $4.6bn. Sales to commercial institutions (as opposed to consumers and including PCs, printers, and other stuff sold to companies) accounted for $12.4bn in the quarter, up 9 per cent.

In Q4, Dell's overall desktop PC sales rose by 4 per cent to $3.58bn, with laptop and netbook sales rising at the same rate, hitting $4.85bn. Software and peripherals accounted for $2.65bn in revenues for the quarter, up 7 per cent from the year-ago period.

Steve Schuckenbrock, president of Dell services, said that Dell's Large Enterprise segment accounted for $4.7bn in revenues, up 12 per cent, with server sales up 14 per cent and PC client hardware sales up 20 per cent; operating income was up 79 per cent to $502m. In Dell's SMB segment, revenues hit $3.75bn, up 12 per cent like the big biz segment, but server spending was up 22 per cent here and storage was up 20 per cent, but client hardware was only up 10 percent. Operating income for the SMB segment came to $450m, rising 60 percent over a year ago.

The Windows 7 refresh is a little better among big businesses, while the server refresh is hitting its stride at small businesses. Dell's Public segment, which covers local, state, and national governments, had $4bn in sales, up 4 per cent, with server spending among government customers up 13 per cent and storage up 12 per cent. Operating income was only up a bit, though, rising 9.9 per percent to $366m. The Consumer segment accounted for $3.28bn, down 8 per cent, but more importantly it had an operating income of $69m, up from a meager $9m a year ago.

Drilling down into services, Dell did $656m in outsourcing revenues, up only 1.5 per cent, while service projects revenues accounted for $190m, up 5.6 per cent. Transaction services revenues (mostly warranty and tech support for products) was flat at $1.1bn. Dell had a $13.9bn services backlog as the quarter came to an end, with a little bit more in outsourcing than support services.

Dell generated $4bn in cash from operations in the fourth quarter of fiscal 2011, and generated $14.8bn in cash for all of that year. The company bought $800m in its own shares during the year, with $200m of that being spent in Q4. And it entered fiscal 2012 with $14.4bn in cash and equivalents, and $6bn in debts.

Gladden said in the call that Dell, the company, expected for the consumer business to pick up the pace a bit in fiscal 2012, and for the company to be smart about what consumer products it peddles so it can expand its margins from consumer products. Gladden added that Dell, the company, believed that its server business will continue to grow faster than the server racket at large and that the client refresh among corporations would continue to gain steam.

And that is why Dell, the man, is projecting for fiscal year 2012 sales to rise between 5 and 9 per cent, with somewhere between 6 and 12 per cent growth in non-GAAP operating margins. ®

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