Dell's Dark Days

1:05 PM -- The accounting saga at Dell continues to rumble on, posing a question mark over the vendor's long-term storage strategy.

Documents filed yesterday with the SEC reveal that Dell is delaying the filing of its Form 10-Q for the quarter ended May 4 due to questions raised by the ongoing probe into the firm's books.

The SEC, as well as Dell's own Audit Committee, are currently investigating the vendor's previous financial statements. Last November, the firm also received a related subpoena from the U.S. Attorney for the southern district of New York.

The last year has been a difficult one for Dell, characterized by lost market share, job losses, executive turnover, and the constant shadow of the accounting investigation. In March, the vendor reported that costs associated with the probe had already taken a hefty $89 million bite out of operating income. (See Dell Details Ongoing 'Pressure'.)

Yesterday's filing reveals that the investigation is now in its "final phases," adding that the Audit Committee "is in the process of reviewing each of the identified accounting errors and proposed correcting adjustments."When this review is complete, "the Audit Committee will evaluate the impact and nature of the errors to determine whether a restatement of previously issued financial statements will be required," it explains.

The filing does not reveal when this review is likely to be finished, although Dell promises that it is "working diligently" to file its reports for the second and third quarters of 2007, its annual report for fiscal 2007, and the quarterly report for the first quarter of 2008, "as soon as possible."

Despite these pressures, Dell did manage to report preliminary earnings for the first quarter last month, reporting revenue of $14.62 billion, up slightly from $14.2 billion in the same period last year. (See Dell Shows Prelim Earnings.) On a less positive note, Dell also unveiled plans to shed about 10 percent of its workforce, or just under 9,000 jobs, as part of a major restructuring effort.

All this upheaval comes at a time when Dell is attempting to crank up its storage strategy, recently unveiling LTO-4 drives and the first in a set of customized data center solutions. (See Dell Delivers LTO-4 and Dell Intros Data Center.)

Storage may even be something of a silver lining on the vendor's otherwise cloudy skies. The preliminary first quarter results highlight annual storage revenue growth of 15 percent, outpacing the 13 percent growth in the firm's server business.Although quarterly storage revenues, at $500 million, were less than a third of the $1.6 billion generated by Dell's server division, they are at least heading in the right direction, unlike the vendor's falling revenues in desktops, software, and peripherals.

James Rogers, Senior Editor Byte and Switch