Dell reports strong first-quarter earnings

Dell reports strong first-quarter earnings

Dell's net revenue grows 9 percent, beating expectations of $15.7 billion

Dell this week reported strong earnings for the first fiscal quarter of 2009, with laptop revenue growth offsetting a drop in desktop revenue.

Dell's net revenue was US$16.08 billion for the quarter, growing 9 percent year-over-year and beating expectations of $15.7 billion based on analysts polled by Thomson Financial.

The company reported net income of US$784 million, a 4 percent year-over-year increase that beat analyst estimates of $696.2 million. The earnings included a $106 million charge related to severance costs and facility closures.

Revenue in the mobility group, which includes laptop sales, totaled US$4.9 billion, a 22 percent year-over-year increase. Laptop shipments grew 43 percent during the quarter, the company said. Desktop revenue fell 5 percent year-over-year to $4.7 billion.

Dell was too aggressive on pricing in certain product areas, which cut the company's revenue, Dell CEO Michael Dell said during a conference call.

Though he didn't specify the areas where aggressive prices affected revenue, desktop revenue fell despite a 9 percent increase in shipments.

Server shipments grew 21 percent, though revenue increased only 5 percent over the previous year. Dell was aggressive on pricing in the low-end server market, where its market share grew, Dell Chief Financial Officer Don Carty said during the call.

Dell reduced its employee headcount by 7,000 in the past year, including about 3,700 employees in the first quarter, the company said. It also added about 2,700 employees through acquisitions. The company cut its headcount by 3,200 by the end of fiscal 2008, which ended on Feb. 28.

The company last year announced plans to reduce its headcount by 8,800, but during the quarter Michael Dell said the layoffs may exceed that number in an effort to further cut costs. The company wants to save US$3 billion over the next three years.

The company now aims to cut its headcount by 8,900, Carty said.

"We are cutting costs every day for the rest of the life of the company. This is going to remain a very cost-conscious company," Carty said.

However, the company will continue to add personnel in growth areas such as services and in emerging markets such as Eastern Europe, Carty said.

Dell is also realigning its manufacturing strategy by shutting down some factories while opening new operations in emerging markets.

Meanwhile, the company has opened factories in low-cost manufacturing countries like Poland, Brazil and India to meet the growing needs in emerging markets. Dell is willing to shift computer assembly to partners to reduce costs and boost margins.

Dell's share of revenue coming from outside the US reached a record 55 percent during the quarter. Revenue in the BRIC countries -- Brazil, Russia, India and China -- grew 58 percent year-over-year, with unit shipments of PCs and servers growing 73 percent year-over-year in those countries.

"We believe China's going to become the largest retail market for PCs," Dell said. Dell has 1,800 stores in China and expects to have 3,500 stores by the end of the second quarter.

Dell had 13,000 retail outlets worldwide at the end of the first quarter, an increase from 10,000 retail outlets at the end of 2008. The company will continue to add retailers worldwide, especially in emerging markets, as it diversifies away from its direct-sales strategy.

"The universe is more than 13,000 stores; we're more at the start of this process," Dell said.

With solid revenue growth, the company's efforts to transform itself are taking hold, which should drive the company through the current economic weakness in the US, Carty said.

"We are seeing conservatism in IT spending in the US" from the government sector to the small-and-medium-business sector, Carty said. "Like everybody, we'd like to see the economy more robust."

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