Dell Posts Strong Year-End Results, But Outlook Not So Great

Published: February 22, 2006

by Alex Woodie

Strong worldwide demand for Dell's PCs and its servers and storage devices were reflected in record fourth quarter and year-end financial results, which the Texas company announced last week. Despite the success of the quarter and beating Wall Street's earnings-per-share expectations, traders drove Dell's stock down in value.

Overall revenues for Dell's quarter ended February 3 totaled about $15.2 billion, a record for the company, and a 13 percent increase from a year ago, while its fiscal year 2006 revenues landed just shy of $56 billion, also a record, and a 14 percent increase from FY05. Dell's business outside the U.S. increased by 21 percent last quarter, signaling Dell's ongoing success in Europe and the Asia-Pacific region, while overall U.S. growth was 10 percent. Net income for the quarter rose 52 percent to $1 billion, while GAAP profit for the year came in at $3.6 billion, a 17 percent increase.

Dell's enterprise business, including storage, servers, services, and software, increased in revenues by 21 percent, driven by a 41 percent increase in revenue from storage devices alone. Sales of servers and networking devices held steady and accounted for 10 percent of the company's total quarterly revenue--the same amount the product category held last year--while revenues from PC sales dropped as a percentage of overall revenue, from 42 percent last year to 37 percent this year. The difference was made up in storage, mobility, enhanced services, and software and peripherals.

Despite the success of fiscal year 2006, Dell's stock, which is traded on the NASDAQ National Market, fell about 5 percent last Friday, the day of Dell's announcement, in large part because the company expects revenue growth of only 6 to 9 percent for the first quarter of fiscal 2007; the stock has not moved much since. Last year, the company enjoyed a 16 percent increase in revenues during the first quarter. Analysts were also disappointed in Dell's ongoing refusal to use processors from AMD, Intel's chief rival in the X86 space.