Dell Blows Past Earnings Predictions

The company said higher average selling prices boosted its top line, and that a senior leadership restructuring "to enhance accountability" marked a key part of its transformation.

At the same time, Dell announced it would reduce its head count by about 10 percent -- or almost 9,000 employees -- during the next year, and the cuts would be worldwide.

Financial analysts, on average, had expected Dell to turn in earnings per share of 26 cents on $13.95 billion in revenue, compared to earnings per share of 33 cents on $14.22 billion for the same quarter a year earlier.

The quarter's numbers marked Dell's return to growth in both sales and profitability.

Dell has been in the midst of a sweeping reconstruction of the entire company. The company has replaced virtually all of its senior executives since last year, and earlier this month chairman and CEO Michael Dell said the company would seek to depart from 23 years of history by aggressively expanding its go-to-market strategy with the channel and opening up a broad, new effort at entering the retail space.

But the accounting issues have been hovering over the company since last year. In its earnings press release, Dell director Thomas Luce, who is overseeing an Audit Committee investigation into the company's accounting during previous years, said it is still unknown whether the PC maker will have to restate past earnings.

"We are continuing to move toward the conclusion of our investigation," Luce said in Dell's press release. "We are working closely with management and our independent auditors to assess the accounting errors and control deficiencies that have been identified, and have met and will be meeting further with the SEC to provide updates on the status of the investigation. Although this process has taken us longer than we would have liked, it is important to commit the time and resources required to ensure a thorough and comprehensive review and resolution of all identified issues and the implementation of appropriate remedial measures."

In its earnings press release, the company said it incurred $46 million in costs related to the ongoing investigations.

In addition to the U.S. Securities and Exchange Commission, the U.S. Attorney for the Southern District of New York is investigating accounting issues at the Round Rock, Texas-based company. In earlier statements, Dell said the Audit Committee of its board found "a number of accounting errors, evidence of misconduct and deficiencies in the financial control environment."

The SEC began an informal investigation in August 2005; the Audit Committee of Dell's board and federal prosecutors began their own probes about a year later.

From an operational point of view, in its press release Dell said the company's server business grew by 19 percent, year-over-year, and led its transition from a product-sales strategy to a more end-to-end focus.

"The company took deliberate actions to concentrate on solutions sales, realign pricing and drive a better mix of products and services in the quarter," the company said in its earnings statement. "While these actions slowed overall unit growth, a 14 percent year-on-year improvement in average selling prices contributed to improved gross margins, revenue growth of 3 percent and operating margins of 6.5 percent. Cash and marketable securities were down $200 million sequentially to $12.3 billion, driven largely by a reduction in accounts payables levels and a more linear level of business activity in the quarter."

In frenzied after-hours trading on Nasdaq, shares of Dell stock jumped from $26.91 to $29.15 on the news, before pulling back slightly. Dell also announced, though, that due to its inability to get up to date in its mandatory 10-Q and 10-K filings with the SEC because of the accounting probes, the company is postponing its annual meeting that had been slated for July 20. No new date for that meeting has been set.