Exhibit 99.1
Dell Achieves Industry Leading Global Share of 19.3 Percent in Second Quarter;
Results Led by Strong Growth in Asia Pacific/Japan Region and Emerging Markets;
New Consumer Desktops and Two-Socket Server to Feature AMD Processors
ROUND ROCK, Texas--(BUSINESS WIRE)--Aug. 17, 2006--Dell
(NASDAQ:DELL) reported revenue of $14.1 billion for the second quarter
of fiscal year 2007, an increase of 5 percent year-over-year.
Operating income was $605 million, or 4.3 percent of revenue, which
includes $119 million of stock-based compensation. The company priced
aggressively in a slower market resulting in operating income which
was lower than its May expectations on similar revenue. As a result,
EPS for the quarter finished at 22 cents.
"While we are disappointed with the results for the quarter, we
are taking the necessary actions to correct missteps and improve our
results for the long term," said Kevin Rollins, Dell chief executive
officer. "Key actions include accelerating cost initiatives,
increasing investments in service and support, and better pricing
management."
Dell Achieves Record Global Share
Dell achieved a record, industry-leading global share of 19.3
percent with units up 6 percent for the quarter. International sales,
up 11 percent for the quarter, were led by the Asia-Pacific and Japan
region, where Dell moved to the No. 2 position. The emerging markets
of China, Brazil and India were led by strong unit growth of 37, 77
and 82 percent, respectively. In both China and Brazil, Dell expects
to be No. 1 in servers with nearly 26 percent and 41 percent share,
respectively.
Cash flow from operations was almost $700 million and Dell ended
the quarter with $10.8 billion in cash and investments. Dell spent
$1.0 billion in the quarter to repurchase 43 million shares of common
stock.
Second Quarter
(in millions, except share data) FY'07(1) FY'06(2) Change
-----------------------------
Revenue $14,094 $13,428 5%
Operating Income $605 $1,173 (48%)
Net Income $502 $1,020 (51%)
EPS $0.22 $0.41 (46%)
Year to Date
(in millions, except share data) FY'07(1) FY'06(2) Change
-----------------------------
Revenue $28,310 $26,814 6%
Operating Income $1,554 $2,347 (34%)
Net Income $1,264 $1,954 (35%)
EPS $0.55 $0.78 (29%)
1. Results for the three and six month periods ended Aug. 4, 2006
include stock-based compensation expense of $81 million ($0.04 per
share) and $158 million ($0.07 per share) respectively, net of
tax, due to the implementation of Statement of Financial
Accounting Standard No. 123 (revised 2004) Share-Based Payments,
("SFAS 123(R)"). Dell implemented SFAS 123(R) using the modified
prospective method. Accordingly, net income prior to fiscal 2007
includes only compensation expense related to restricted stock
awards, but does not include stock-based compensation expense for
employee stock options or the purchase discount under Dell's
employee stock purchase plan.
2. Results for the second fiscal quarter ended July 29, 2005 include
the impact of an $85 million ($0.03 per share) tax benefit related
to a revised estimate of taxes on the repatriation of earnings
under the American Jobs Creation Act of 2004.
Turnaround in Customer Experience
The company's intense focus on leadership in customer experience
has resulted in a significant turnaround in all aspects of customer
experience, including satisfaction, purchase and repurchase
preferences and support. These improvements have been validated by
recent high-profile industry satisfaction surveys as well as Dell's
own internal data. For example:
-- Satisfaction -- Dell's scores in the annual University of
Michigan American Consumer Satisfaction Index (ACSI) improved
2.5 points overall, with specific gains in customer
satisfaction, product quality and service quality.
-- Purchase Preferences -- The Investor Business Daily/TIPP Home
Computer Purchase Outlook Index survey reported Dell was the
preferred brand among 50 percent of likely computer buyers in
the July poll versus 41 percent in June (next competitor was
at 12 percent of respondents). Among likely notebook computer
buyers, Dell was the No. 1 choice of 60 percent of the
respondents. It is the highest score for Dell in this category
in almost three years.
-- Likely to Repurchase -- Dell's internal "Likely to Repurchase"
data registered its highest results for the past six quarters
with a 6.5 percent increase for relationship customers and a
5.0 percent gain for transactional customers.
-- Service Innovation -- DellConnect, a new service innovation,
has met with great acceptance, as more than one million
customers have now used the service. DellConnect allows Dell
technicians to fix computer issues remotely and for free.
Ninety-four percent of customers who have received service say
it makes problem-solving easier and they would recommend it to
others.
"While we are not yet satisfied, we are seeing a clear turnaround
in service, support and purchase preferences for Dell," said Rollins.
"Our response is to increase our investment in the customer experience
throughout the world and continue this positive momentum to create the
best experience for all of our customers. This is a top priority for
us for the long term."
Dell will increase its investment in customer experience --
spanning the buying experience through service and support -- by an
incremental amount of $50 million to $150 million for the fiscal year.
The additional investment will accelerate customer experience
initiatives throughout the organization.
Dell Announces Extension of Relationship with AMD to Build Best
Product Line in Company History
Dell is extending its relationship with AMD, first announced last
quarter. Dell will launch Dimension desktop computers with AMD
processors next month and will introduce a two-socket and
multi-processor server using AMD Opteron processors by the end of the
year.
During the quarter, the company introduced new ninth generation
(9G) PowerEdge servers with Intel's latest Xeon 5100 series
processors. These systems deliver a 152 percent performance increase
over the previous generation and can lower power consumption by up to
25 percent. Dell is enthusiastic about Intel's recent launches of the
Core 2 Duo for desktops and Xeon 5100 Series processors for servers
and workstations, and the upcoming Merom processor notebooks, which
help Dell provide great technology for its customers. Dell's
partnerships with AMD and Intel will greatly enhance its ability to
end the year with the broadest and best product line in its history.
Total enterprise revenue, which includes servers, storage and
associated services and software and peripherals, grew 11 percent
year-over-year, led by storage revenue, which was up 36 percent. In
Storage, Dell had its first full quarter shipping our new Dell/EMC CX
midrange storage systems. Dell also launched two new Network Attached
Storage (NAS) storage servers designed on its 9G server platform.
Enhanced services revenue was up 21 percent year-over-year to $1.4
billion. During the quarter, Dell announced Platinum Plus, a new
service for enterprise customers that allows customers to compare
critical IT performance metrics to historical results. Customers can
also use the Real-Time Tracking Window using Google Earth to view
around-the-world, real-time status of service progress. Initial
results show customers are immediately benefiting with a significant
reduction in resolution time.
In mobility, revenue was up 8 percent year-over-year on 22 percent
unit growth. Dell is a leader in embedded wireless broadband. The
company has finished a major upgrade of our notebook portfolio,
including the 3-pound Latitude D420. The increased security,
connectivity, and durability features of these notebooks reflect
extensive input received from customers.
Dell's Inspiron E1505 recently received the Best Buy award from
Consumer Reports, citing solid multi-media features and competitive
price. Additionally, the E1505 and the XPS M1210 were both selected as
Top 10 Back to School Systems by Laptop magazine. Desktop computer
revenue decreased 4 percent year-over-year on a 1 percent decline in
units.
In software and peripherals, revenue grew 10 percent with imaging
revenue up 5 percent year-over-year. Consumables were up 46 percent
and accounted for more than 50 percent of Dell's imaging revenue mix.
Total laser printing revenue was up 34 percent. Dell launched its
third generation of laser printers, including six new color,
multi-function, and mono lasers, delivering superior cost per page
results for our customers. The product line refresh is led by the
3110cn printer, which is three times faster than its predecessor and
delivers enterprise level color laser performance at less than half
the price of a comparable competitor model.
Dell's Record Global Share Gain Led by International Markets
In the Asia-Pacific and Japan region, Dell had unit growth of 27
percent; almost triple the rate of the industry, excluding Dell. This
allowed the company to move into the No. 2 position in the region with
11.1 percent share, up 1 percentage point year-over-year. In Japan,
Dell also moved to the No. 2 position with 16.1 percent share.
In Dell's Americas region, revenue was up 3 percent
year-over-year, led by 29 percent growth in Americas International as
the countries outside of the U.S. approached a $4 billion run rate. In
the U.S., revenue growth was 1 percent. Dell gained two share points
sequentially and has 34.2 percent share for the U.S. market, which is
larger than its next three competitors combined.
In Western Europe, the market's overall revenue decreased due to a
slowdown in commercial, but Dell's share in the overall region reached
an all time high of 14 percent with revenue up 3 percent
year-over-year and unit growth of 6 percent.
Informal Investigation
In August 2005, Dell received notice from the U.S. Securities and
Exchange Commission that it was conducting an informal investigation
of the company. The notice stated that the investigation is not an
indication that any violations of law have occurred. The SEC has
requested information relating to revenue recognition and other
accounting and financial reporting matters for certain past fiscal
years, and Dell has been cooperating. In the course of responding to
the requests, the company recently discovered information that raises
potential issues relating to certain periods prior to fiscal 2006.
While the company does not believe that these issues have had or will
have any material impact on its financial position or the reported
results of operations for the relevant years, the company's audit
committee, upon the recommendation of management, has initiated an
independent investigation. Management is committed to addressing any
questions, concerns or issues the SEC or the audit committee may have.
About Dell
Dell Inc. (NASDAQ:DELL) listens to customers and delivers
innovative technology and services they trust and value. Uniquely
enabled by its direct business model, Dell sells more systems globally
than any computer company, placing it No. 25 on the Fortune 500.
Company revenue for the last four quarters was $57.4 billion. For more
information, visit www.dell.com. To get Dell news direct, visit
www.dell.com/RSS.
Special Note
Statements in this press release that relate to future results and
events (including statements about Dell's anticipated financial and
operating performance and the impact of the informal SEC
investigation) 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: the outcome of the
investigation into Dell's revenue recognition and other accounting and
financial reporting matters, 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 ability 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.
Consolidated statements of income, financial position and cash
flows follow.
Dell is a trademark of Dell Inc.
Dell disclaims any proprietary interest in the marks and names of
others.
DELL INC.
Condensed Consolidated Statement of Income and Related Financial
Highlights
(in millions, except per share data or as otherwise noted)
(unaudited)
Three Months Ended
-----------------------------
% Growth Rates
-----------------
Yr.
August 4, May 5, July 29, to
2006 (1) 2006 (1) 2005 (2) Sequential Yr.
---------- -------- --------- ---------- ------
Net revenue $14,094 $14,216 $13,428 (1%) 5%
Cost of revenue 11,904 11,744 10,929 1% 9%
---------- -------- ---------
Gross margin 2,190 2,472 2,499 (11%) (12%)
Selling, general and
administrative 1,457 1,394 1,204 5% 21%
Research, development
and engineering 128 129 122 (1%) 5%
---------- -------- ---------
Total operating
expenses 1,585 1,523 1,326 4% 19%
---------- -------- ---------
Operating income 605 949 1,173 (36%) (48%)
Investment and other
income, net 53 50 61 6% (13%)
---------- -------- ---------
Income before income
taxes 658 999 1,234 (34%) (47%)
Income tax provision 156 237 214 (34%) (27%)
---------- -------- ---------
Net income $502 $762 $1,020 (34%) (51%)
========== ======== =========
Earnings per common
share:
Basic $0.22 $0.33 $0.42 (33%) (47%)
========== ======== =========
Diluted $0.22 $0.33 $0.41 (33%) (46%)
========== ======== =========
Weighted average
shares outstanding:
Basic 2,264 2,297 2,418
Diluted 2,278 2,318 2,478
Percentage of Total
Net Revenue:
- -------------------
Gross margin 15.5% 17.4% 18.6%
Selling, general and
administrative 10.3% 9.8% 9.0%
Research, development
and engineering 0.9% 0.9% 0.9%
Operating expenses 11.2% 10.7% 9.9%
Operating income 4.3% 6.7% 8.7%
Income before income
taxes 4.7% 7.0% 9.2%
Net income 3.6% 5.4% 7.6%
Income tax rate 23.8% 23.8% 17.4%
Net Revenue by
Geographic Region (in
billions):
- ----------------------
Americas $9.2 $8.9 $8.9 3% 3%
Europe 3.0 3.4 2.9 (10%) 3%
Asia Pacific - Japan 1.9 1.9 1.6 (1%) 17%
Percentage of Total
Net Revenue:
- ----------------------
Americas 65% 63% 66%
Europe 21% 24% 22%
Asia Pacific - Japan 14% 13% 12%
Net Revenue by Product
Category (in billions):
- ------------------------
Desktop PCs $4.9 $5.1 $5.1 (6%) (4%)
Mobility 3.7 3.7 3.4 1% 8%
Servers and Networking 1.4 1.3 1.3 0% 1%
Storage 0.5 0.5 0.4 12% 36%
Enhanced Services 1.4 1.4 1.2 2% 21%
Software and
Peripherals 2.2 2.2 2.0 2% 10%
Percentage of Total
Net Revenue:
- -------------------
Desktop PCs 35% 36% 37%
Mobility 26% 26% 26%
Servers and Networking 9% 9% 10%
Storage 4% 3% 3%
Enhanced Services 10% 10% 9%
Software and
Peripherals 16% 16% 15%
Note: Percentage growth rates and ratios are calculated based on
underlying data in thousands.
(1) Results for the three months ended August 4, 2006 and May 5, 2006
include stock-based compensation expense of $81 million ($0.04 per
share) and $77 million ($0.03 per share) respectively, net of tax,
due to the implementation of Statement of Financial Accounting
Standard No. 123 (revised 2004) Share-Based Payments, ("SFAS
123(R)"). Dell implemented SFAS 123(R) using the modified
prospective method. Accordingly, net income prior to fiscal 2007
includes only compensation expense related to restricted stock
awards, but does not include stock-based compensation expense for
employee stock options or the purchase discount under Dell's
employee stock purchase plan.
(2) Results for the second fiscal quarter ended July 29, 2005 include
the impact of an $85 million ($0.03 per share) tax benefit related
to a revised estimate of taxes on the repatriation of earnings
under the American Jobs Creation Act of 2004.
DELL INC.
Condensed Consolidated Statement of Operations and Related Financial
Highlights
(in millions, except per share data or as otherwise noted)
(unaudited)
Six Months Ended
-------------------- % Growth
Rates
August 4, July 29, ----------
2006 (1) 2005 (2) Yr. to Yr.
---------- --------- ----------
Net revenue $28,310 $26,814 6%
Cost of revenue 23,648 21,824 8%
---------- ---------
Gross margin 4,662 4,990 (7%)
Selling, general and administrative 2,851 2,411 18%
Research, development and engineering 257 232 11%
---------- ---------
Total operating expenses 3,108 2,643 18%
---------- ---------
Operating income 1,554 2,347 (34%)
Investment and other income, net 103 120 (14%)
---------- ---------
Income before income taxes 1,657 2,467 (33%)
Income tax provision 393 513 (23%)
---------- ---------
Net income $1,264 $1,954 (35%)
========== =========
Earnings per common share:
Basic $0.55 $0.80 (31%)
========== =========
Diluted $0.55 $0.78 (29%)
========== =========
Weighted average shares outstanding:
Basic 2,280 2,437
Diluted 2,298 2,497
Percentage of Total Net Revenue:
- --------------------------------
Gross margin 16.5% 18.6%
Selling, general and administrative 10.1% 9.0%
Research, development and engineering 0.9% 0.9%
Operating expenses 11.0% 9.9%
Operating income 5.5% 8.8%
Income before income taxes 5.9% 9.2%
Net income 4.5% 7.3%
Income tax rate 23.8% 20.8%
Net Revenue by Geographic Region (in
billions):
- ------------------------------------
Americas $18.1 $17.4 4%
Europe 6.4 6.1 4%
Asia Pacific - Japan 3.8 3.3 17%
Percentage of Total Net Revenue:
- --------------------------------
Americas 64% 65%
Europe 22% 23%
Asia Pacific - Japan 14% 12%
Net Revenue by Product Category (in
billions):
- ------------------------------------
Desktop PCs $10.0 $10.4 (4%)
Mobility 7.4 6.7 10%
Servers 2.7 2.6 2%
Storage 1.0 0.8 23%
Enhanced Services 2.8 2.3 24%
Software and peripherals 4.4 4.0 10%
Percentage of Total Net Revenue:
- --------------------------------
Desktop PCs 35% 39%
Mobility 26% 25%
Servers 9% 10%
Storage 4% 3%
Enhanced Services 10% 8%
Software and peripherals 16% 15%
Note: Percentage growth rates and ratios are calculated based on
underlying data in thousands.
(1) Results for the six month period ended August 4, 2006 include
stock-based compensation expense of $158 million ($0.07 per
share), net of tax, due to the implementation of Statement of
Financial Accounting Standard No. 123 (revised 2004) Share-Based
Payments, ("SFAS 123(R)"). Dell implemented SFAS 123(R) using the
modified prospective method. Accordingly, net income prior to
fiscal 2007 includes only compensation expense related to
restricted stock awards, but does not include stock-based
compensation expense for employee stock options or the purchase
discount under Dell's employee stock purchase plan.
(2) Results for the Year to Date period ended July 29, 2005 include
the impact of an $85 million ($0.03 per share) tax benefit related
to a revised estimate of taxes on the repatriation of earnings
under the American Jobs Creation Act of 2004.
DELL INC.
Condensed Consolidated Statement of Financial Position and Related
Financial Highlights
(in millions, except for "Ratios" and "Other information")
(unaudited)
August 4, May 5, July 29,
2006 2006 2005
---------- -------- ---------
Assets:
- -------
Current assets:
Cash and cash equivalents $6,801 $6,877 $6,337
Short-term investments 1,265 1,579 2,709
Accounts receivable, net 4,741 4,332 3,910
Financing receivables, net (2) 1,453 1,451 693
Inventories, net 651 636 570
Other 2,510 2,522 2,579
---------- -------- ---------
Total current assets 17,421 17,397 16,798
Property, plant and equipment, net 2,154 2,074 1,843
Investments 2,696 2,690 3,578
Long-term financing receivables, net
(2) 272 256 227
Other non-current assets 605 454 165
---------- -------- ---------
Total assets $23,148 $22,871 $22,611
========== ======== =========
Liabilities and Stockholders' Equity:
- -------------------------------------
Current liabilities:
Accounts payable $10,323 $10,069 $9,196
Accrued and other 6,544 6,251 5,172
---------- -------- ---------
Total current liabilities 16,867 16,320 14,368
Long-term debt 504 503 504
Other non-current liabilities 2,652 2,674 2,230
---------- -------- ---------
Total liabilities 20,023 19,497 17,102
Stockholders' equity 3,125 3,374 5,509
---------- -------- ---------
Total liabilities and stockholders'
equity $23,148 $22,871 $22,611
========== ======== =========
Ratios:
- -------
Days supply in inventory 5 5 5
Days of sales outstanding (1) (2) 33 30 29
Days in accounts payable 78 77 76
---------- -------- ---------
Cash conversion cycle (40) (42) (42)
Other Information:
- ------------------
Headcount (approximate) 75,100 69,700 61,400
Average total revenue/unit
(approximate) $1,460 $1,430 $1,480
Note: Ratios are calculated based on underlying data in thousands.
(1) Days of sales outstanding include the effect of product costs
related to customer shipments not yet recognized as revenue that
are classified in other current assets. At August 4, 2006, May 5,
2006, and July 29, 2005, days of sales in accounts receivable and
days of customer shipment not yet recognized were 30 and 3 days,
27 and 3 days, and 26 and 3 days, respectively.
(2) Financing receivables, net have been separately classified on the
balance sheet as of August 4, 2006 and May 5, 2006. The July 29,
2005 balance sheet has been reclassified to conform to the current
presentation and days of sales outstanding have been recalculated
to reflect the reclassification of certain items previously
included in accounts receivable to financing receivables.
DELL INC.
Condensed Consolidated Statement of Cash Flows
(in millions)
(unaudited)
Three Months Six Months
Ended Ended
----------------------------
August 4, 2006
----------------------------
Cash flows from operating activities:
Net income $502 $1,264
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 119 225
Stock-based compensation expense 119 231
Tax benefits from stock-based
compensation 1 4
Effects of exchange rate changes on
monetary assets and
liabilities denominated in foreign
currencies (159) (223)
Other 49 97
Changes in:
Operating working capital 83 (30)
Non-current assets and liabilities (41) 127
------------- -------------
Net cash provided by operating
activities 673 1,695
Cash flows from investing activities:
Investments:
Purchases (2,869) (5,956)
Maturities and sales 3,197 6,745
Acquisition of business, net of cash
acquired (97) (97)
Capital expenditures (200) (384)
------------- -------------
Net cash provided by investing
activities 31 308
Cash flows from financing activities:
Purchases of common stock (1,000) (2,691)
Issuance of common stock under employee
plans 50 188
Excess tax benefits from stock-based
compensation 18 41
Other (2) (5)
------------- -------------
Net cash used in financing activities (934) (2,467)
Effect of exchange rate changes on cash
and cash equivalents 154 223
------------- -------------
Net decrease in cash and cash
equivalents (76) (241)
Cash and cash equivalents at beginning
of period 6,877 7,042
------------- -------------
Cash and cash equivalents at end of
period $6,801 $6,801
============= =============
Additional supplemental information is available on our website at
http://www.dell.com/downloads/global/corporate/conferences/q2fy07_earn
ings_pres.pdf (Due to certain characters contained in this URL, it may
be necessary to copy and paste this hyperlink into your Internet
browser's URL address field)
CONTACT: Dell Inc., Round Rock
Media Contacts:
Bob Pearson, 512-728-3256
bob_pearson@dell.com
or
Jess Blackburn, 512-725-0187
jess_blackburn@dell.com
or
Investor Contacts:
Lynn A. Tyson, 512-723-1130
lynn_tyson@dell.com
or
Robert Williams, 512-728-7570
robert_williams@dell.com