If you are considering becoming a 1M/1M premium member and would like to join our mailing list to receive ongoing information, please sign up here.

Subscribe to our Feed

Dell Acknowledges Need For Convergence Device Strategy

Posted on Friday, May 30th 2008

Dell yesterday reported strong Q1 FY 2009 results driven by strong growth in commercial and consumer products and services and lower operating expenses. Revenue grew 9.6% y-o-y to $16 billion beating analyst estimate of $15.68 billion. Net income at $784 million (up 4%) or EPS of $0.38 (up 12%) also beat analyst estimates of $0.34. The market is upbeat about its turnaround and its shares jumped 10% in after hours trading to about $24. Earlier coverage is available here, here, and here.

Chart for Dell Inc. (DELL)

Dell reduced its headcount by 3,700 in the quarter and 7,000 in the past year, but added about 2,700 employees through acquisitions, making the net reduction about 5%. It reduced its operating expenses by 7% q-o-q to 12.9% of revenue. Its operating margin is 5.6%, from 5.4% in Q4 2008. It bought back 52 million shares for about a billion and plans to spend another billion on share repurchase in Q2.

Over a 3-year period, Dell plans to save $3 billion (with more job cuts in line) and focus on the global consumer market, enterprise businesses, notebooks, SMB and the emerging markets. This year, it expects to focus more on services and SMB.

Segment-wise, Mobility grew 22% and accounted for 31% (up from 27%) revenue with notebook units growing 43%, or 1.2 times industry rate. Servers and Networking, accounting for 10% revenue, grew 4% with server shipments growing three times the industry rate at 21%. Services grew 13% and accounted for 9% revenue. Desktop PCs declined 5% and account for 29% revenue, but down from 33% last year. Software and Peripherals, accounting for 17% revenue grew 17% and Storage revenue grew 15%.

With its increased focus on emerging markets, sales outside US accounted for the majority of revenue with 45% from Americas, 24% from EMEA, and 13% from APJ. BRIC countries – Brazil, Russia, India and China – had a 58% growth on a 73% increase in shipments, and accounted for 9% revenue.

After six years at the top in the PC market, Dell slipped to No.2 with 14.8% market share behind HP with 18.6% in 2007. A major reason for this downfall was cited to be its lack of a retail strategy. During the past year, since Michael Dell took over, it has started selling at Best Buy and WalMart stores and has increased its global retail presence with more than 13,000 stores. This strategy is surely paying off and it increased its market share to 15.7% with a growth rate of 21.6% versus HP’s share of 19.1% and growth of 17.4% as per a preliminary report from IDC. In the US market, Dell leads with a market share of 30.9% (up from 27.7%) with a growth of 15.6% compared to the industry’s growth of just 3.5% and HP’s 0.3%. Retail was not an issue for computer makers until recently, when Apple Stores set a whole new standard for high-touch customer service for the industry. And with consumers becoming a huge percentage of the market, this direct customer interface has become critical for computer makers.

Well, looks like things are looking up for Dell. But there is still no sign of a convergence device strategy. Read what Dell has to say about the subject in a recent interview with Wall Street Journal: “There are all kinds of opportunities on smaller size screens; you will see us with number of devices that sit between the basic cell phone and the PC.”

Hacker News
() Comments

Featured Videos


[…] excluding charges was $0.33, missing the analyst estimate of $0.36. Earnings beat analyst estimates last quarter, and the miss was not taken well by the market, as shares […]

Dell Targets India - Sramana Mitra on Strategy Friday, August 29, 2008 at 9:32 AM PT