Dell's Sales Hit in Fiscal Q4, Profits Hit Harder

Published: March 7, 2007

by Timothy Prickett Morgan

Server and PC marker Dell reported its preliminary financial results for its fiscal fourth quarter ended February 2, and the numbers were not those that people are used to seeing from Dell. The company's overall sales fell by 5 percent to $14.4 billion, and net earnings fell by 33 percent to $673 million. Ouch.

Dell managed to boost its sales of servers and networking equipment, which the company lumps together, to $1.5 billion in the quarter, an increase of 7 percent and aided by a 2 percent unit growth in server shipments compared to the fiscal fourth quarter of 2006. Storage array sales--mostly disk arrays, but also including storage--were flat in the quarter at $600 million worldwide.

Dell's notebook and other handheld device sales were flat at $3.8 billion, and its desktop PC business took it on the chin, with sales down 18 percent to $4.6 billion; Dell said that unit shipments declined by 18 percent as well for desktops. Lackluster adoption for Windows Vista, as well as delays in getting Vista out the door, are probably not helping Dell on the desktop. But, then again, Hewlett-Packard's PC unit did pretty good in a similar quarter. (See this story for more on HP's financial results, which ran in last week's issue of The Unix Guardian.)

Enhanced services managed to eke out some growth at Dell in the quarter, rising 7 percent and pacing the server and networking business exactly. Software and peripherals, accounted for $2.4 billion in sales during the quarter, the same as last year.

"We are disappointed with the company's results, but what matters is our future plan of action. We are systematically moving to increase efficiencies, improve execution and transform the company," explained Michael Dell, the company's founder and chairman who has recently returned to the chief executive officer position to turn his company around. "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 did not, by the way, host a conference call with analysts, nor did its preliminary statement of financials provide comparative statistics with the fourth quarter of fiscal 2006 or the third quarter of fiscal 2007; if you want comparisons, you have to go back in the documents and do the math yourself. But Dell did hold out this ray of hope to Wall Street: "We won't achieve our goals overnight, but we will achieve our goals. 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."

A little more than a month ago, Dell ousted chief executive officer Kevin Rollins as it became clear that the fourth fiscal quarter was not going to be fun. Dell is under investigation by the Securities and Exchange Commission, which is why the results announced last week are preliminary, and has been slapped by a class action lawsuit that claims Dell has improperly accounted for rebates given to it by Intel--rebates that added up to $1 billion in some years.

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