Dell's Q4 Earnings Show Shift Towards Enterprise, Data Center Focus

Dell Tuesday reported a slight rise in revenue for its fourth fiscal quarter and full fiscal year 2012, but a fall in earnings over last year during the quarter and a lowering of expectations for the first fiscal quarter of 2013 dampened investor enthusiasm for the company.

A strong rise in enterprise sales, especially the company's branded storage products as well as servers, offset declines in government and consumer business as Dell continued to shift from its traditional PC focus to a focus on the data center.

For its fourth fiscal 2012 quarter, which ended February 3, Dell reported revenue of $16.0 billion, up 2 percent over the $15.7 billion the company reported for the fourth quarter of 2011. That 2 percent rise in sales came in part due to an extra week in the fourth quarter of fiscal 2012 compared to the year-ago period.

For its fourth quarter, Dell reported earnings of $764 million, down 18 percent over the $927 million it reported last year. That equaled 43 cents per share, down 10 percent compared to last year.

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For the full fiscal year, Dell reported revenue of $62.1 billion, up 1 percent compared to last year. The company also reported income of $3.4 billion, up 33 percent over last year, with earnings per share rising during the period by 39 percent to reach $1.88.

The results reflect a change in Dell as it moves to become more of a business-oriented and data center-oriented company while depending less on its PC business, said Michael Dell, chairman and CEO of the company which bears his name.

“Our customers think of Dell in much broader terms now, trusting us with their comprehensive IT needs, from the datacenter to the device. We are more committed than ever to both developing and investing in innovative solutions that deliver greater value and better outcomes for our customers," he said in a statement.

For its fourth fiscal quarter, Dell's total storage revenue fell 13 percent to $500 million. However, that drop was due to the ending of the company's reseller agreement with its former top vendor partner, EMC, as Dell moved to focus more on its own storage intellectual property resulting from several key acquisitions including last year's purchase of Compellent.

Of that $500 million in storage sales for the quarter, Dell reported $463 as coming from its own branded storage, which was up 33 percent over the previous quarter. That compared to a quarter-to-quarter rise in total storage sales of only 9 percent.

Dell's fourth quarter server and networking revenue rose 6 percent over that of the same period of last year to reach $2.2 billion.

Services were a strong point for Dell, which reported revenue for the category of $2.2 billion for the quarter, up 12 percent over last year.

However, the company's fourth quarter 2012 PC business rose a mere 3 percent over last year to reach $3.7 billion, while its software and peripherals business fell 4 percent during the same time period to $2.6 billion.

Dell's fourth quarter large enterprise business revenue rose 5 percent over last year to reach $4.9 billion, while its SMB sales rose 6 percent to reach $4.0 billion. However, government sales fell 1 percent over last year to $3.9 billion, led by weakness in the U.S., while consumer sales fell 2 percent to $3.2 billion.

Next: 2013 Revenue Expected To Drop

Looking forward, Dell expects first fiscal quarter 2013 revenue to fall 7 percent compared to the fourth fiscal quarter to reach just under $15 billion, which compares to the $15 billion it reported for the same period of last year.

Non-GAAP earnings per share for all of fiscal 2013 are expected to exceed the $2.13 the company reported for last year, Dell said.

Investors showed their dislike of Dell's prospects by driving the company's stock price down nearly 5 percent to $17.35 per share in after-hours trading about three-and-a-half hours after the close of trade.