Tuesday, February 8, 2011

Dell Inc. (NASDAQ: DELL): Q4 Earnings Preview 2010

Dell Inc. (NASDAQ: DELL), the third-largest supplier of personal computers,  is scheduled to release its fourth-quarter earnings after the closing bell on Tuesday, February 15, 2011. Analysts, on average, expect the company to report earnings of 37 cents per share on revenue of $15.74 billion. In the year ago period, the company reported earnings of 28 cents per share on revenue of $14.90 billion. The company’s year-ago results do not include its $3.9 billion acquisition of Perot Systems, which closed on November 3, 2009.

Dell Inc. designs, develops, manufactures, markets, sells, and supports computer systems, as well as provides related services worldwide. It offers desktop PCs; notebook computers, mobile workstations, and smartphones; servers and networking products; storage solutions, including storage area networks, network-attached storage, direct-attached storage, disk and tape backup systems, and removable disk backup; and printers and displays.

In the preceding third quarter, the Round Rock, Texas-based company's net income was $822 million, or 42 cents a share, compared to $337 million, or 17 cents a share, in the year-ago quarter. On an adjusted basis, the company earned 45 cents a share in the latest quarter. Revenue jumped to $15.4 billion from $12.9 billion. Analysts, on average, expected the company to report earnings of 32 cents per share on revenue of $15.74 billion. 

At its last earnings call in November, the company said that it expects to see continued strength from the ongoing client refresh among large corporate accounts and strong growth in enterprise products and services. Fourth quarter revenue is expected to track in-line to slightly up from the third quarter as commercial demand remains stable while consumer demand remains more muted. The company expects full-year revenue to track toward the mid-point of the 14-to-19 percent range set earlier in the year and non-GAAP operating income growth to be between 28 and 32 percent.

The company's top line has benefited from the corporate refresh cycle. Companies are upgrading dated information-technology systems and adopting the most recent iteration of Microsoft Corp.’s operating system, Windows 7, as well as its Exchange e- mail software and Office 2010 productivity programs.  Also, favorable component prices and company buying has helped Dell overcome a slowdown in demand from consumers concerned about unemployment and the pace of economic recovery.

As it seeks new growth markets, Dell is pushing aggressively into mobile with smartphones and tablets. Like a number of other vendors, Dell has an eye on how tablets are being adopted by enterprise buyers, and how the so-called consumerisation of IT is having an effect on the way services are delivered. In January, the company unveiled out a new version of its Streak tablets. The 7-inch, 4G capable, device will run Google Inc.'s (NASDAQ: GOOG)  Android operating system.

Dell’s firm footing in the storage space is encouraging. Data storage plays a crucial role in cloud computing, which helps users access remote computing power and data over the Internet. Dell has been positioning itself, though acquisitions and product development, as a leader in the area.  Dell is attempting to shift its focus from PC and server roots to become a data-center vendor with a broader scope. Moreover, Dell’s recent endeavor to expand in China is also encouraging.

CEO Dell aims to diversify its portfolio and lessen the company’s dependence on PC sales by spending more on research and development and using acquisitions to build up the server, data storage, networking gear and services businesses. Dell recently agreed to acquire Compellent Technologies Inc. for $27.75 a share in cash.  Last month, Dell agreed to buy acquire information-security services firm SecureWorks Inc. Atlanta-based, privately held SecureWorks Inc. provides information-technology services to companies across different industries. The company specializes in managed security services, security and risk consulting, and threat intelligence. In December,announced its intention to acquire medical storage solution provider InSite One provides data archiving, storage, and disaster-recovery solutions to the health care industry, which help organizations to easily retain data as well as share and transfer images. These cloud-based solutions will complement Dell’s Unified Clinical Archive platform, which facilities medical practitioners to reduce the complexities in archiving records.

However, soft demand in the Consumer segment, a high debt level and stiff competition in computing and emerging cloud-computing spaces remain concerns.

Full Disclosure: None.

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