Dell Q1 Fiscal 2011 Earnings VLog on Dell Shares:
Rob Williams, Director of Investor Relations
Brian Gladden, CFO and Senior Vice President
Brad Anderson, Senior Vice President of Enterprise Product Group
ROB WILLIAMS: Hi. Welcome to Dell Shares. I'm Rob Williams, and with me today is Brad
Anderson, who heads our Enterprise Solutions Group. Brad, thanks for joining us.
BRAD ANDERSON: Thank you.
ROB WILLIAMS: Brian Gladden, CFO.
BRIAN GLADDEN: Thanks for having me.
ROB WILLIAMS: Brian, thanks for joining us.
BRIAN GLADDEN: Good to see you.
ROB WILLIAMS: Q1, growth starting to come back, feel pretty good about the trajectory of
the business.
Let's start with your view on the quarter.
BRIAN GLADDEN: Yeah, I think, Rob, pretty good quarter for us and in an improving
environment where we saw some growth come back to the business. We've been talking about
the commercial demand returning to the business, and I think we've seen that really around the
world in many parts of our business.
We saw revenue at $14.9 in the quarter, which is up 21 percent versus last year, basically flat
with what we saw in the fourth quarter, which is a little bit better than what we had talked about
in terms of that sequential seasonality in the company. And it was really driven by our
commercial businesses around the world.
Profitability was solid, operating income improving at 5.5 percent. It was a 29 percent increase
versus last year, which is great. And we saw earnings per share on a non-GAAP basis up 20
percent.
So, solid P&L in terms of the growth in the operating income, driven by growth in the business,
and again really the commercial business drove the performance.
ROB WILLIAMS: Right, and how was the cash performance in the quarter?
BRIAN GLADDEN: Yeah, we delivered about $400 million of free cash flow, which in a
quarter which is generally our weaker cash flow quarter, as we have bonus payments and some
other timing. We did build some inventory, but solid working capital performance with negative
36 days on cash conversion cycle.
ROB WILLIAMS: So, flat sequentially?
BRIAN GLADDEN: Flat sequentially on working capital performance, which is pretty good.
So, good cash quarter for us to continue, ended the quarter with $11.6 billion in cash.
ROB WILLIAMS: Business unit performance, give us your perspective on the performance of
each of the business units this quarter.
BRIAN GLADDEN: Yeah, again it was driven by commercial. The commercial business in
aggregate for us was almost a $12 billion business in the quarter, up 22 percent for that part of
the business, driven by enterprise solutions, and I know Brad will talk about that, but really
strong performance in servers, storage, and services for us.
Good profitability and nice leverage in the large enterprise business, and SMB. We've talked
about that business coming back with some nice leverage as we've taken cost out and see some
volume improvements.
Good performance as well in the pubic business, solid profitability there.
ROB WILLIAMS: Right, right.
BRIAN GLADDEN: Although we saw some pressure in parts of that business in terms of
weaker demand in Fed and Europe specifically.
So, solid performance from the commercial business, and consumer continues to make progress.
We've got work to do there obviously in cost structure and the combination we did with the SMB
business will continue. We're starting to see the early signs of that.
So, we feel good about the business units in terms of their progress in the quarter.
ROB WILLIAMS: Great, great.
Brad, a lot of exciting things happened in the quarter. We had a big product launch, solutions
launch out in San Francisco at the end of March, and some pretty significant technology
transitions in the quarter. Maybe you could give us a view into your thoughts on our
performance for the enterprise business and the solutions business.
BRAD ANDERSON: Absolutely. It was a busy quarter. We refreshed most of our servers
with the new Westmere processor. So, that happened in the March timeframe. We followed it
up with the Nehalem EX, the biggest step forward kind of in performance generation over
generation in the 4 socket. It was time to market -- in fact, we beat many of our key competitors
to market, so that's really kind of makes it for a nice transition to get out there in front.
Had some pretty differentiated products in that space as well, first scalable 2 socket, support
about a half a terabyte, which is really ideal for virtualization, which is really driving a lot of the
momentum in the marketplace.
On the storage front also some pretty exciting things in the storage front. You're seeing us really
kind of build up the ecosystem around EqualLogic and Information Data Management. And so
we're becoming much more of a solution player on the storage front as well.
And then, you know, we're working much more closely with the Perot folks now, integrating the
services into our product offerings.
And so as we kind of drive our strategy forward, services become an increasingly important
piece of it.
And so when we kind of reflect on the results, we saw 78 percent year over year growth in
EqualLogic, really like the shape of what we're doing on the storage business. We saw 39
percent revenue growth in servers, you know, and sequentially we saw our business significantly
up from Q4 to Q1, which I feel really good about that. And then the services business, again I
think that's 53 percent year over year growth. So, really kind of a nice aggregate package in our
enterprise solution business.
ROB WILLIAMS: We also launched some exciting new products with the Dell-EMC
relationship. Could you talk about those for a moment?
BRAD ANDERSON: Yeah, we -- you know, EMC is a very important partner to us. We're
continuing to work to make that relationship even stronger.
So, what you saw this past quarter, we are now OEMing, Dell branding the EMC Data Domain,
Data Deduplication product, as well as their Solara NX offering. So, we're really excited about
that.
In addition, we are complementing that also on the Dell side. We introduced our first Dell DX
object store, which is going to be a really winning solution, working closely with ISVs. So,
you're going to see some archiving solutions particularly in the health care segment.
ROB WILLIAMS: And that's very tightly integrated with the services business?
BRAD ANDERSON: Absolutely, and, in fact, you know, when you think about Perot's strength
in the health care market, this is really a winning solution, and they provide the aggregate
services around that.
ROB WILLIAMS: Great. And this is a little bit of a preview for the analyst meeting coming
up in June. So, I'll put Brad on the spot. Brad, tell us a little bit about your view on our solutions
business and your vision for how these products, the services, the different things that we're
doing with the sales force kind of link together as we move forward.
BRAD ANDERSON: Well, I mean, we're going to talk a little bit more about this next month,
but we're really driving open, capable, affordable solutions. It's a very different strategy than
what you're seeing from the more vertically integrated competitors. We're seeing a lot of
reception for that in the marketplace. There's a lot of kind of technology transitions and maybe
even disruptive things going on in the marketplace, which we think really plays well to a very
open industry standard strategy that Dell is driving. And with the inclusion of Perot and the
integration services around these key technologies, we really think we have a very solid strategy
going forward, and the response from customers has been very, very strong as far as not wanting
to be locked into kind of a proprietary framework.
ROB WILLIAMS: Well, that's a great view, Brad, appreciate you sharing that with us.
BRAD ANDERSON: Thank you, Rob.
ROB WILLIAMS: Brian, let's wrap up with the outlook for Q2 and the rest of this year.
BRIAN GLADDEN: Yeah, Rob, I think we've got good momentum actually in the quarter.
You look at the market dynamics, and as we've said throughout this cycle over the last couple of
years, I mean, we're primarily commercially oriented. That's 80 percent of our business. It's nice
to see some demand come back. We would say that large customers are back in the game and
buying. We're seeing that in our business around the world. So, we expect to see, you know,
pretty solid growth dynamics throughout the year.
I think you look at sequentials into the second quarter, we would typically be up a little bit, given
our exposure to education and some of those parts of our business. We expect to see that.
And I think some of the other dynamics, component costs continue to be a bit challenging and
tight, memory specifically, but we're managing that in the business.
There is some volatility around currencies around the world as you see some of the dynamics
playing out there. But again we'll manage that. And I think we're looking forward to a good
second half.
ROB WILLIAMS: Great, great.
Hey, thanks for joining us. This is really great to have both you guys on today.
And thank you for joining us. I'd definitely encourage you to review our additional earnings
materials, our press release, of course the earnings call which is available on Dell.com, and some
of the other related materials that go along with that.
Thanks for joining us today. We look forward to your comments and we'll see you next time.
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