Dell CEO Discusses F2Q2011 Results - Earnings Call Transcript

Dell CEO Discusses F2Q2011 Results - Earnings Call Transcript
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Dell, Inc. (DELL)

F2Q2011 Earnings Call Transcript

August 19, 2010 4:45 pm ET

Executives

Rob Williams – Director, IR

Brian Gladden – SVP and CFO

Steve Schuckenbrock – President, Large Enterprise

Michael Dell – Chairman and CEO

Analysts

Brian Alexander – Raymond James

Keith Bachman – Bank of Montreal

Richard Gardner – Citigroup

Toni Sacconaghi – Sanford Bernstein

Steven Fox – CLSA

Maynard Um – UBS

Katy Huberty – Morgan Stanley

Scott Craig – Bank of America

Jason Maynard – Wells Fargo

Jayson Noland – Robert Baird

Ben Reitzes – Barclays Capital

Chris Whitmore – Deutsche Bank

Lou Miscioscia – Collins Stewart

Abhey Lamba – ISI Group

Aaron Rakers – Stifel Nicolaus

Ananda Baruah – Brean Murray

Amit Daryanani – RBC Capital Markets

Mark Moskowitz – JP Morgan

Bill Fearnley – Janney Montgomery

Nehal Chokshi – Technology Insights

Andy Hargreaves – Pacific Crest

Rob Cihra – Caris & Company

Shannon Cross – Cross Research

Presentation

Operator

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» Dell Perot Systems Integration Conference Call Transcript

Good afternoon, and welcome to the Dell Inc. second quarter fiscal year 2011 earnings conference call. I’d like to inform all participants that this call is being recorded at the request of Dell. The broadcast is the copyrighted property of Dell Inc. Any rebroadcast of this information in whole or part without the prior written permission of Dell Inc. is prohibited. As a reminder, Dell is also simulcasting this presentation with slides at www.dell.com/investor. Later we will conduct a question-and-answer session. (Operator instructions) I’d like to turn the call over to Rob Williams, Head of Investor Relations. Mr. Williams, you may begin.

Rob Williams

Thank you. With me today are Michael Dell, Brian Gladden, and Steve Schuckenbrock, Head of our Large Enterprise Business. Brian and Steve will review our second quarter results, then Michael will follow with some brief comments.

We’ve posted a web deck on dell.com and we released a VLog on Dell shares. I encourage you to review these materials for additional perspective. Some of our upcoming investor relations activities include the Citi Technology Conference on September 8 and the Deutsche Bank Cs on September the 15th.

Next, I’d like to remind you that all statements made during this call that relate to future results and events are forward-looking statements that are based on current expectations. Actual results and events could differ materially from those projected in the forward-looking statements because of a number of risks and uncertainties which are discussed in our annual and quarterly SEC filings and in the cautionary statement contained in our press release and on our website. We assume no obligation to update our forward-looking statements.

Please note that on today’s call we will be referring to non-GAAP financial measures, including non-GAAP gross margin, operating expenses, operating income, net income and earnings per share. Historical non-GAAP financial measures are reconciled to the most directly comparable GAAP measures in the slide presentation posted on the Investor Relations portion of our website at dell.com and our 8-K filed today, which we encourage you to review. Please note that unless otherwise mentioned, all growth percentages refer to year-over-year progress.

Now I’ll turn it over to Brian.

Brian Gladden

Thanks, Rob. We had another solid quarter when you look at our revenue growth, operating income growth, and our strong cash flow generation. The key to our results continues to be strong global commercial demand, especially in servers and networking storage and services. These revenues were up 43% to $4.3 billion, with strength across the board and also aided by the integration of Perot.

We had another strong quarter in emerging countries with 52% growth in the BRIC countries. While we had solid performance at the operating income line, we continue to see challenging dynamics in our supply chain costs, which pressured our gross margins and consumer profitability. We continue to have confidence that we will improve gross margins in the second half, as we see a better cost component environment and we execute operational improvements in our Consumer business.

Given our enterprise focus, today we have asked Steve Schuckenbrock to share his view on the progress in our Large Enterprise Business as well as the overall trends in enterprise solutions. But first, let’s look at the second quarter P&L and key performance metrics, which are provided on pages five and six of the web deck.

Revenue in the second quarter was $15.5 billion, up 22% year-over-year and 4% sequentially. This is slightly above our typical historical seasonality as we saw better demand in all the commercial businesses and a typical second quarter. On a GAAP basis, operating income was $745 million or 4.8% of revenue and EPS was $0.28, which is up 17% year-over-year. On the rest of this call, I’ll refer to non-GAAP financial measures.

Operating income grew 9% to $872 million or 5.6% of revenue. Consistent with our views from the first quarter call and the analyst meeting, we saw improved client product demand from commercial customers and sequential commodity component inflation. These dynamics resulted in a sequential gross margin decline of about 40 basis points. Given this margin pressure, we managed OpEx to 11.6% of revenue, while still making key investments in enterprise solutions R&D and sales related resources.

Our financing and other expenses were $49 million, which is down modestly versus the prior quarter. We continue to expect F&O to trend in the plus $50 million range. Our tax rate was 23.6%, reflects some discrete items along with increased profits and lower tax jurisdictions. For the year, we expect our tax rate to be in the 25% to 26% range, which is slightly lower than our previous outlook.

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