Dell Details Ongoing 'Pressure'

Dell has released a report of its latest quarterly earnings, revealing the woes of a company in crisis.

Since Dell is in the midst of an investigation by regulators into its books, the latest financials, like those of the two previous quarters, remain preliminary. Still, the numbers tell a tale of struggle: Revenues for the most recent fourth fiscal quarter 2007 were $14.4 billion, flat with the previous quarter; operating income was $801 million, down about 3 percent sequentially; earnings per share were 30 cents, flat with the previous quarter; and cash and investments were $12.5 billion, up from $11.6 billion last quarter.

In addition, Dell reported that costs associated with the ongoing investigations into its accounting practices took an $89 million bite out of operating income, representing a reduction of 3 cents per share.

"We are disappointed with the company's results," said CEO Michael Dell in a prepared statement. "We are systematically moving to... transform the company... We will be known again for strong operating and financial performance and a great experience for our customers. But it will take time to realize the future benefits of the improvements we are making today."

Dell's return earlier this year to the helm of the company he founded is one step in the process. (See EMC Loses Ally in Rollins and Dell Preps for Long Haul.) Another step could be partnerships, like the one Dell has with EMC, in which Dell will co-market EMC's midrange Clariion storage systems through 2011.In its own recent SEC filing, EMC revealed that Dell has been a successful channel partner, accounting for 14.5 percent of EMC revenues in 2006; 11.6 percent of revenues in 2005; and 10.2 percent of accounts receivable as of December 31, 2006 (a figure that amounts to roughly $172 million).

Storage accounted for just 4 percent of overall revenues this quarter, but it represented one of the only product segments to grow sequentially, to $600 million from last quarter's $577 million. Still, Dell could do worse than attempt to expand this segment, particularly given the fact that one of Dell's fiercest rivals, HP, is having some problems in this area. (See Hospital Laptop Stolen; Info on 7,800 Patients at Risk and HP Bags Polyserve.)

In contrast, servers accounted for $1.5 billion, flat with last quarter; mobility products brought in $3.8 billion, down from $3.9 billion; desktop computers accounted for $4.6 billion, down from $4.7 billion; and enhanced services brought in $1.5 billion, down from $1.4 billion last quarter.

Today's report should be no surprise to Wall Street. In a report late in January, Goldman Sachs analyst Laura Conigliaro and colleagues wrote: "Dell is in the midst of a major transition on several fronts, giving rise to the possibility of interim setbacks." Still, the team expects the stock to start rising again "based on better margins" after bottoming out over the next few months.

Likewise, analyst Andrew Neff of Bear Stearns also wrote in January that Dell is going through a major set of changes. "Dell had lost its edge in products, services, and execution," he wrote. But he seems to see turnaround as a distinct possibility, after a few tough quarters.Will Dell look to storage to help out? That remains to be seen. But for now, it remains a help, not a hindrance, for the struggling company.

Mary Jander, Site Editor, Byte and Switch