Dell's 3Q: Enterprise Business Up, Consumer Down As Transition To Solutions Continues7:53 PM EST Thu. Nov. 15, 2012
Dell may have seen a significant drop in revenue and earnings for its fiscal third quarter 2013 over last year, but the quarterly results are the clearest indicator yet that Dell has gone far on its transformation from a PC company to a full-fledged provider of enterprise products and services.
Dell's PC and mobility business dropped significantly from last year, but its enterprise product and services business registered strong gains as Dell continues to transform itself into an enterprise solution provider.
It has been a long transformation, said Brian Gladden, sales vice president and CFO of Dell.
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"Four years ago this month we embarked on our strategy to deliver end-to-end solutions," Gladden said.
For its fiscal third quarter 2013, which ended Nov. 2, Dell reported revenue of $13.7 billion, down 11 percent from the $15.4 billion the company reported during its third quarter of 2012.
Product revenue for the quarter fell 13 percent over last year to $10.7 billion, while services revenue fell 1 percent during the same period, Gladden said.
GAAP income for the fiscal 2013 third quarter was reported as $589 million, or 27 cents per share, down 48 percent from last year's $901 million, or 42 cents per share. Non-GAAP income for the quarter of $886 million or 39 cents per share was down 31 percent from last year's $1.1 billion, or 50 cents per share.
Dell's server and networking business grew 11 percent year-over-year, which Gladden said represented the 12th consecutive quarter of growth for the business. However, that growth was by far overshadowed by a 19 percent drop in desktop and mobile client device revenue and a 37 percent drop in third-party software sales related to the mobile devices, he said.
In terms of specific products, Dell's server revenue grew 4 percent over last year driven by the introduction of Dell's 12G (12th-generation) servers. Those servers now account for two-thirds of Dell's server revenue, Gladden said.
However, the real highlight of Dell's enterprise business is networking, where revenue rose 40 percent over last year. Gladden attributed that growth to the growth of the 12G servers as well as the introduction of 10-Gbit Ethernet products.
NEXT: Disappointing Storage, Client Business
Storage, however was a disappointment, with Dell's revenue from the product line falling 16 percent over last year. However, most of that fall was attributed to Dell's decision last year to stop reselling EMC storage after building that business for several years.
When the EMC factor was removed, sales of Dell storage based on its own intellectual property still fell 3 percent from last year, which Gladden said was below expectations. He attributed the drop to the challenging economic environment.
Dell's desktop PC revenue fell 8 percent, which meant the company held its existing market share as the entire PC market fell, Gladden said. However, the company's mobile PC revenue fell 26 percent, which Gladden said was below expectations.
"We're sticking to mid- to high-value portions of that business, and we're not chasing low-value business," he said.
Steve Felice, Dell's president and chief commercial officer, said during the question-and-answer period following prepared remarks, said that the drop in the company's client solutions business should be mitigated going forward as Dell's tablet PC business-to-business customers grows.
Customers are saying they need to prioritize on such things as security as they roll out mobile products, and Dell is responding by building security into more of its products, Felice said.
"Those opportunities are going to broaden our commercial business and bring us back to growth, he said.
When asked why Dell does not just get out of the client business altogether, Gladden said his company continues to see the need for end-to-end solutions, as well as a need to address the bring-your-own-device (BYOD) move by enterprise customers.
Looking forward, Dell expects the current challenging economic environment to continue, Gladden said.
"We don't expect that to improve much in the fourth quarter," he said.
As a result, Dell is expecting its fiscal fourth quarter 2013 revenue to increase between 2 percent and 5 percent, which would put it at between $14.0 billion and $14.4 billion, still down significantly from the $16.0 billion it reported for the same period last year.
Dell also said it is maintaining its previous expectation for at least $1.70 in earnings per share on a non-GAAP basis for its full fiscal year 2013.
However, Gladden said, Dell's enterprise business should buck the company's business as a whole. "This is a business in which we will continue to invest and grow," he said.
The response by investors to Dell's financials was mixed, with share prices in after-hours trading initially falling sharply but then recovering somewhat after a couple of hours.
PUBLISHED NOV. 15, 2012