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Dell, Inc.
Where Dell Is Growing

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By jammerh
March 3, 2005

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Revenue growth is strong - up 15% year-over-year. This compares favorably to slowing sales of consumer PCs and other consumer electronics devices.

In addition, Dell performed well selling PCs to businesses, with growth of 16% in the 4th quarter of 2005. Growth in the previous quarter here came in at 14% so, I'd say we're seeing positive acceleration of growth in this particular area.

Sales outside the U.S. continue to advance well, with growth of 22% in Europe, the Middle East, and Africa.

In storage again Dell continues to perform well, with growth of 27%. Increased business with EMC helped here, but services also performed well, rising 32% to $1 billion.

In software, and peripherals sales reached $2 billion for a gain of 36%, and printing and imaging businesses now represent 65% of software and peripherals for $1.3 billion.

Gross margins remain flat at 18.5%, the company got some help from continuing decline in component costs. Operating margins stayed at 8.8% with operating income at $1.187 billion compared to $981 million in the previous year.

Although year-over-year net income was down to $667 million, this was largely due to a charge for repatriation of $4.1 billion in overseas earnings. Without this, net was $947 million compared to $749 million previously.

For 1Q06, Dell is looking for revenues of $13.4 billion while trends usually indicate a 7%-8% decline. Dell, however, expects continuing growth in software, services and peripherals, along with strength in U.S. corporate computer sales to give the company the ability to continue outperforming the industry.

Dell has a total debt/capital of just 7.2%. Operational cash flow was $1.8 billion. For the full year this was $5.3 billion. Asset turns remain strong. Inventory turns and DSO both show sequential improvement. Return on Equity for the year was just over 52%. With the fourth quarter charge it was just under 48%.

Caveats:
Dell faces further downturn in the PC business. There is also a possibility that an FASB ruling regarding stock-based compensation, expected in the latter half of this year, could have a negative effect on the company.

Despite these challenges, Dell continues to take market share. Yes, the company garners a premium to the broader market, but it is one that is in my opinion, is richly deserved.


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