Dell generates record EPS, outpaces industry growth

Dell achieved record earnings in its fiscal 2006 second-quarter, as it exceeded industry shipment growth in a competitive pricing environment. Sales of storage systems, mobility products, enhanced services and software and peripherals were up strongly around the world.

Dell`s second quarter, which ended 29 July, was highlighted by industry-record shipments of 9.1 million computer systems - including 2.7 million mobility products - and company-record revenue of more than $2 billion from software and peripheral products, including printers and displays.

The company`s second-quarter earnings were $1.02 billion, or 41c per share, up 32% from a year ago. Second-quarter EPS includes a three-cent revision to the previously recorded tax estimate for the repatriation of funds under the American Jobs Creation Act of 2004. Absent that benefit, EPS was a record 38c, up 23%. Dell revenue for the quarter was $13.4 billion, 15% higher than the same quarter last year.

Year to date

(in millions, except share data) FY`06 FY`05 Change FY`06 FY`05 Change

Revenue $13,428 $11,706 15% $26,814 $23,246 15%

Operating Income $1,173 $1,006 17% $2,347 $1,972 19%

Reported GAAP Net Income $1,020 $799 28% $1,954 $1,530 28%

Pro forma Net Income $935 $799 17% $1,869 $1,530 22%

Reported GAAP EPS $0.41 $0.31 32% $0.78 $0.59 32%

Pro forma EPS1 $0.38 $0.31 23% $0.75 $0.59 27%

"Our teams performed well in a dynamic market. Our growth in Q2 was characterised by share increases in every region," said Kevin Rollins, Dell`s chief executive officer.

"While average selling prices were down more than we would have liked, we focused on balanced profitability and, in the process, delivered to our guidance for EPS."

Dell`s operating margin as a percent of revenue was 8.7%, up from 8.6% a year ago. The company generated more than $900 million in cash flow from operations. Dell spent $1.8 billion during the quarter to repurchase almost 47 million shares, and has now repurchased almost 280 million shares over the past 10 quarters.

Rollins said continued steady purchase rates by corporate customers, the seasonal impact of back-to-school buying in the consumer segment, and continued growth in markets outside of the US will drive Dell`s third-quarter business. The company expects Q3 revenue of $14.1 to $14.5 billion, and earnings per share of 39 to 41 cents. Dell plans to repurchase at least $1.2 billion in stock during the current fiscal quarter.

Revenue from outside the United States accounted for 39% of Dell`s total for the quarter and grew 24% year-over-year.

Asia-Pacific and Japan (APJ) revenue grew 24% year-over-year. Software and peripherals revenue in APJ increased 90% year-over-year. Printer shipments more than tripled over last year, and Dell took the number one position for Intel-based servers in Japan. Revenue from enhanced services increased 67% year-over-year.

In Europe, the Middle East and Africa, revenue was up 21% over last year. Storage revenue increased 47% and enhanced services revenue increased 66%. The region shipped 52% more mobility products year-over-year.

Excluding the US, the Americas region revenue grew 34% year-over-year. Shipments of mobility products increased, driven by notebook growth of 67% year-over-year. Printer shipments increased 117% from a year ago.

In the US, Dell expanded its leadership as the number one systems vendor in all of its segments with more than one point year-over-year share increase. Dell`s US server leadership increased by more than five points year-over-year.

Worldwide revenue from storage products grew 26% year-over-year. Dell`s storage area network (SAN) business grew more than 50% faster than the rest of the industry.

Customers are shifting to denser, more powerful industry-standard servers, and Dell increased its shipments by 25% year-over-year. In this product category, Dell grew twice the rate of the industry in every region, gaining almost three points of share year-to-year and closing the gap with the leader by more than four percentage points.

Mobility revenue in the quarter was a record $3.4 billion, a 20% year-over-year increase. Mobility product shipments increased 47%, a result of more customers shifting from desktops to mobility products. Dell increased desktop computer shipments by 17% and added another half-share point to its worldwide leadership.

Software and peripherals revenue increased 35% year-over-year with further expansion of Dell`s imaging products. Laser printer units increased 168% year-over-year and overall printer shipments grew 77% year-over-year.

Enhanced services revenue for the quarter was $1.2 billion, an increase of 41% year-over-year, as more customers look to Dell for professional and managed services for their enterprises. Dell`s quality of support was cited as often as its product reliability as the reason enterprise customers choose Dell in the current server customer satisfaction survey conducted by Technology Business Research.