Dell achieves industry leading global share of 19.3% in second quarter

Dell reported revenue of $14.1 billion for the second quarter of fiscal year 2007, an increase of 5% year-over-year.

Operating income was $605 million, or 4.3% of revenue, which includes $119 million of stock-based compensation. The company priced aggressively in a slower market resulting in operating income which was lower than its May expectations on similar revenue. As a result, EPS for the quarter finished at 22 cents.

"While we are disappointed with the results for the quarter, we are taking the necessary actions to correct missteps and improve our results for the long term," said Kevin Rollins, Dell chief executive officer. "Key actions include accelerating cost initiatives, increasing investments in service and support, and better pricing management."

Dell achieved a record, industry-leading global share of 19.3% with units up 6% for the quarter. International sales, up 11% for the quarter, were led by the Asia-Pacific and Japan region, where Dell moved to the number two position. The emerging markets of China, Brazil and India were led by strong unit growth of 37%, 77% and 82%, respectively. In both China and Brazil, Dell expects to be number one in servers with nearly 26% and 41% share, respectively.

Cash flow from operations was almost $700 million and Dell ended the quarter with $10.8 billion in cash and investments. Dell spent $1 billion in the quarter to repurchase 43 million shares of common stock.

Second quarter year to date (in millions, except share data) FY`071 FY`062
Change FY`071 FY`062 Change
Revenue $14 094 $13 428 5% $28 310 $26 814 6%
Operating Income $605 $1 173 (48%) $1 554 $2 347 (34%)
Net Income $502 $1 020 (51%) $1 264 $1 954 (35%)
EPS $0.22 $0.41 (46%) $0.55 $0.78 (29%)

1. Results for the three and six month periods ended 4 August 2006 include stock-based compensation expense of $81 million ($0.04 per share) and $158 million ($0.07 per share) respectively, net of tax, due to the implementation of Statement of Financial Accounting Standard No 123 (revised 2004) Share-Based Payments ("SFAS 123"). Dell implemented SFAS 123 using the modified prospective method. Accordingly, net income prior to fiscal 2007 includes only compensation expense related to restricted stock awards, but does not include stock-based compensation expense for employee stock options or the purchase discount under Dell`s employee stock purchase plan.

2. Results for the second fiscal quarter ended 29 July 2005 include the impact of an $85 million ($0.03 per share) tax benefit related to a revised estimate of taxes on the repatriation of earnings under the American Jobs Creation Act of 2004.

The company`s intense focus on leadership in customer experience has resulted in a significant turnaround in all aspects of customer experience, including satisfaction, purchase and repurchase preferences and support. These improvements have been validated by recent high-profile industry satisfaction surveys as well as Dell`s own internal data. For example:

* Satisfaction -- Dell`s scores in the annual University of Michigan American Consumer Satisfaction Index (ACSI) improved 2.5 points overall, with specific gains in customer satisfaction, product quality and service quality.
* Purchase preferences -- The Investor Business Daily/TIPP Home Computer Purchase Outlook Index survey reported Dell was the preferred brand among 50 percent of likely computer buyers in the July poll versus 41% in June (next competitor was at 12% of respondents). Among likely notebook computer buyers, Dell was the number one choice of 60% of the respondents. It is the highest score for Dell in this category in almost three years.
* Likely to repurchase - Dell`s internal "Likely to Repurchase" data registered its highest results for the past six quarters with a 6.5% increase for relationship customers and a 5% gain for transactional customers.
* Service innovation - DellConnect, a new service innovation, has met with great acceptance, as more than one million customers have now used the service. DellConnect allows Dell technicians to fix computer issues remotely and for free. Ninety-four percent of customers who have received service say it makes problem-solving easier and they would recommend it to others.

"While we are not yet satisfied, we are seeing a clear turnaround in service, support and purchase preferences for Dell," said Rollins. "Our response is to increase our investment in the customer experience throughout the world and continue this positive momentum to create the best experience for all of our customers. This is a top priority for us for the long term."

Dell will increase its investment in customer experience - spanning the buying experience through service and support - by an incremental amount of $50 million to $150 million for the fiscal year. The additional investment will accelerate customer experience initiatives throughout the organisation.

Dell is extending its relationship with AMD, first announced last quarter. Dell will launch Dimension desktop computers with AMD processors next month and will introduce a two-socket and multi-processor server using AMD Opteron processors by the end of the year.

During the quarter, the company introduced new ninth generation (9G) PowerEdge servers with Intel`s latest Xeon 5100 series processors. These systems deliver a 152% performance increase over the previous generation and can lower power consumption by up to 25%. Dell is enthusiastic about Intel`s recent launches of the Core 2 Duo for desktops and Xeon 5100 Series processors for servers and workstations, and the upcoming Merom processor notebooks, which help Dell provide great technology for its customers. Dell`s partnerships with AMD and Intel will greatly enhance its ability to end the year with the broadest and best product line in its history.

Total enterprise revenue, which includes servers, storage and associated services and software and peripherals, grew 11% year-over-year, led by storage revenue, which was up 36%. In Storage, Dell had its first full quarter shipping our new Dell/EMC CX midrange storage systems. Dell also launched two new network-attached storage (NAS) storage servers designed on its 9G server platform.

Enhanced services revenue was up 21% year-over-year to $1.4 billion. During the quarter, Dell announced Platinum Plus, a new service for enterprise customers that allows customers to compare critical IT performance metrics to historical results. Customers can also use the Real-Time Tracking Window using Google Earth to view around-the-world, real-time status of service progress. Initial results show customers are immediately benefiting with a significant reduction in resolution time.

In mobility, revenue was up 8% year-over-year on 22% unit growth. Dell is a leader in embedded wireless broadband. The company has finished a major upgrade of our notebook portfolio, including the 3-pound Latitude D420. The increased security, connectivity and durability features of these notebooks reflect extensive input received from customers.

Dell`s Inspiron E1505 recently received the Best Buy award from Consumer Reports, citing solid multimedia features and competitive price. Additionally, the E1505 and the XPS M1210 were both selected as Top 10 Back to School Systems by Laptop magazine. Desktop computer revenue decreased 4% year-over-year on a 1% decline in units.

In software and peripherals, revenue grew 10% with imaging revenue up 5% year-over-year. Consumables were up 46% and accounted for more than 50% of Dell`s imaging revenue mix.

Total laser printing revenue was up 34%. Dell launched its third generation of laser printers, including six new colour, multifunction and mono lasers, delivering superior cost per page results for our customers. The product line refresh is led by the 3110cn printer, which is three times faster than its predecessor and delivers enterprise level colour laser performance at less than half the price of a comparable competitor model

In the Asia-Pacific and Japan region, Dell had unit growth of 27%; almost triple the rate of the industry, excluding Dell. This allowed the company to move into the number two position in the region with 11.1% share, up one percentage point year-over-year. In Japan, Dell also moved to the number two position with 16.1% share.

In Dell`s Americas region, revenue was up 3% year-over-year, led by 29% growth in Americas International as the countries outside of the US approached a $4 billion run rate. In the US, revenue growth was 1%. Dell gained two share points sequentially and has 34.2% share for the US market, which is larger than its next three competitors combined.

In Western Europe, the market`s overall revenue decreased due to a slowdown in commercial, but Dell`s share in the overall region reached an all time high of 14% with revenue up 3% year-over-year and unit growth of 6%.

In August 2005, Dell received notice from the US Securities and Exchange Commission that it was conducting an informal investigation of the company. The notice stated that the investigation is not an indication that any violations of law have occurred. The SEC has requested information relating to revenue recognition and other accounting and financial reporting matters for certain past fiscal years, and Dell has been cooperating. In the course of responding to the requests, the company recently discovered information that raises potential issues relating to certain periods prior to fiscal 2006. While the company does not believe these issues have had or will have any material impact on its financial position or the reported results of operations for the relevant years, the company`s audit committee, upon the recommendation of management, has initiated an independent investigation. Management is committed to addressing any questions, concerns or issues the SEC or the audit committee may have.