Dell: Costs Drop, But So Does Demand

by: Eric Savitz November 21, 2008 | about stocks: DELL    

Eric Savitz

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As I noted earlier, Dell’s results for the fiscal third quarter ended October 31 included weaker than expected results at the top line, but better than expected profits, thanks to significant cost cutting and improving gross margins. Here are a few key tidbits from the company’s conference call and closer perusal of the numbers:

  • Gross margin of 18.8% was up from 18.5% a year ago, and 17.2% in FY Q2.
  • Operating margin of 6.7% was up from 5.3% a year ago, and 5% in Q2.
  • SG&A of 11% was down from 12.1% a year ago, and 11.2% in Q2.
  • Cash flow from operations in the quarter was negative $86 million.
  • The company bought back 21 million shares in the quarter for about $400 million.
  • Dell has $8.9 billion in cash and investments.
  • The company’s commercial business accounted for 96% of profits and 82% of revenue on a trailing 12 months basis.
  • The commercial business saw revenue drop 6% year over year, on a 5% drop in units. Americas commercial was down 8% in revenue, and 14% in units. EMEA commercial was down 5% in revenue, and flat in units. Asia Pacific/Japan was up 2% in revenue, on a 15% rise in units.
  • The consumer business saw revenue up 10%, on a 32% increase in units.
  • The company said its Dell Financial Services unit has seen an increase in credit losses, but that it is adequately reserved; they have increased credit requirements 5 times in 18 months.
  • The company said it expects “a relatively challenging environment to continue,” but Dell did not give specific guidance for the January quarter.

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This article has 1 comment:

  •  
    Nov 22 03:41 PM
    Hard to tell whether Dell's reserves on its financing business are really enough, and that introduces risk into the stock.

    Look at it this way: How many banks in the last year have said their reserves on loans were enough?
    Reply | Link to Comment
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