Dell Moving To The Cloud

The PC industry is facing difficult times. After the floods in Thailand last year, which hurt production of major manufacturers, the market is now faced with increasing costs because of wage hikes in China’s manufacturing sector. According to recent reports, Chinese manufacturer Foxconn Technology Group increased employee wages by 16%-25%. Foxconn is a supplier to Apple, HP, Dell, Nokia, and Motorola Mobility. Foxconn has been embroiled in several labor disputes about poor working conditions that have led to labor suicides. Apple and Microsoft themselves have been involved in scrutinizing market conditions in the company. Meanwhile, the increased wage bill will translate to increased prices of computer equipment – an unwelcome move in an already depressed market.

Both IDC and Gartner claim that overall PC shipment in Q4 of the previous year fell 0.1% over the year to 92.7 million units. During the quarter, HP’s PC sales continued to decline as they dropped 16% over the year. Yet HP remained the leader in the segment with sales of over 15 million PCs. Lenovo came in the second biggest vendor with sales growing 36% over the year to 13 million PCs, and Dell remained relatively flat with sales of 11.9 million units.

Dell’s Financials
Dell’s (NASDAQ:Dell) Q4 revenues fell grew 2% over the year to $16.03 billion, ahead of the Street’s target of $15.96 billion. EPS of $0.51 fell 4% over the year and was marginally shy of the market’s projected earnings of $0.52 per share. Revenues for the year grew 1% over the year to $62.1 billion, while earnings grew 34% over the year to $0.34.

By segment, Dell Services revenue grew 12% over the year to $2.2 billion. They saw significant growth in Dell-owned storage revenues, which grew 33%. Server and networking revenue grew 6% over the year. Dell’s focus on the enterprise revenues contributed to 5% growth in the segment, with Large Enterprise revenues of $4.9 billion. Public revenues fell 1% over the year to $3.9 billion and the SMB segment saw revenues grow 6% over the year to $4 billion. Consumer revenues of $3.2 billion reported a 2% decline over the year.

For the current year, the company projects EPS of $2.13, compared with market expectations of $2.05. For the current quarter, they project revenues of $14.9 billion, short of the Street’s target of $15.09 billion.

Dell Moves More Deeply into the Cloud
As part of their expanding offerings, Dell recently announced the acquisition of AppAssure. Founded in 2006, AppAssure develops backup software for virtual, physical, and cloud storage. The acquisition will help Dell progress within the cloud computing segment, a service it has been trying to expand in over the past three years. Dell is hopeful that the acquisition will help strengthen confidence of their consumers in using Dell’s cloud services. Terms of the deal were not announced.

This week, Dell will also release their much-awaited Ultrabook, XPS13 priced at $999. The Ultrabook is Dell’s attempt to target the MacBook Air market. XPS13 boasts of a 13 inch screen with a thinner screen border and a full size keyboard. The Windows 7 powered Ultrabook is smaller than most competitors, but initial reviewers claim that its battery life is a disappointment.

Dell’s stock is trading at $17.43 with a market capitalization of $30.99 billion. It touched a 52-week high of $18.36 earlier this month.

IDC expects the PC market to recover slowly during the current quarter. However, the market is expected to pick up by the end of the year. PC sale are projected to grow 15% in the final quarter of the year. PC sales in 2012 are expected to grow 5.4% over the year to 371 million PCs. While Dell may continue to grow within the enterprise segment, personal computers remain a major source of revenues. Improved market conditions within the segment should help to drive Dell’s performance.

Besides PCs, Dell will also be eyeing cloud computing with the enterprise segment. IDC and Gartner estimate that in the current year, 80% of new commercial enterprise apps will be deployed on cloud platforms. Gartner projects that by the end of 2016, more than half of Global 1000 companies will store customer-sensitive data in the cloud. Dell’s recent expansion will help them make bigger inroads into this high-growth market.