Monday, May 16, 2011

Dell Inc. (NASDAQ: DELL): Q1 Earnings Preview 2012

Dell Inc. (NASDAQ: DELL), the third-largest supplier of personal computers,  is scheduled to release its first-quarter earnings after the closing bell on Tuesday, May 17, 2011. Analysts, on average, expect the company to report earnings of 43 cents per share on revenue of $15.40 billion. In the year ago period, the company reported earnings of 30 cents per share on revenue of $14.87 billion. 

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 fourth-quarter, the Round Rock, Texas-based company's net income was $927 million, or 48 cents per share, compared to $334 million, or 17 cents per share, in the year-ago quarter. On an adjusted basis, the company earned 53 cents a share in the fourth quarter. Revenue increased to $15.69 billion from $14.90 billion in the prior year fourth quarter. Analysts, on average, expected the company to report earnings of 37 cents per share on revenue of $15.74 billion.

At its last earnings call in Feruary, Dell said that it expects fiscal year 2012 revenue to grow 5% to 9%, implying revenue of $64.56 billion to $67.02 billion. For the first quarter, the company forecasts normal seasonal declines in its consumer and public businesses and, as such, a slight sequential decline in revenue.

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.

The PC landscape has changed significantly in the past few years and companies within the industry are quickly adapting to new consumer and business demands.The talk of the personal computer industry lately is mostly about everything but computers. Tablets, phones and cloud computing are dominating the conversation at the moment. The burgeoning cloud computing market is making many traditional PC/Server companies rethink the way they do business. Dell now plans to spend $1.0 billion on the cloud computing side of its business. 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.

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. 

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.

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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