DELL INC.
FISCAL YEAR 2013 FIRST QUARTER EARNINGS VLOG
MAY 22, 2012
ROB WILLIAMS: Hi. I'm Rob Williams. With me today is Brian Gladden and Steve Felice.
Gentlemen, welcome.
BRIAN GLADDEN: How are you doing, Rob?
ROB WILLIAMS: I'm doing well. Thanks for joining us on Dell Shares again this quarter.
Brian, we started out the year with Q1 revenue was 14.4 billion, gross margins 22 percent, up
sequentially, and income, earnings per share on a non-GAAP basis up $0.43. The revenue was clearly
below our outlook that we shared at the beginning of the quarter, but we're making progress on the
strategy and some clear results there that are continuing to head us in the right direction. Could you
touch on those two points to get us started?
BRIAN GLADDEN: Yeah, Rob, I would say mixed, mixed in terms of our results, and the revenue for
us was clearly below what we expected. We clearly have some areas where we'd like to see better
execution on our side. But at the same time, there were also some areas of real strength that are
well aligned with the strategy. And as we look at the growth on the enterprise solutions and services
side of the business some real strength around services. That business grew at 4 percent in the
quarter, saw nice improvements in profitability. Our storage business, Dell IP storage grew at 24
percent. Networking was a good story. So, the areas that we've made investments and continue to
make investments pretty well-positioned and continue to be pretty strong for us.
In terms of the rest of the P&L, gross margins at 22 percent, up 30 basis points quarter on quarter.
That's some progress, but we clearly did see some places where there were -- there was pricing
pressure that hurt margins in the quarter. It's something we're going to have to watch as we move
forward.
Managed op-ex pretty well. You know, in that environment where we saw weaker revenue we did
take op-ex out and sequentially took it down pretty significantly, but we'll continue to make those
investments.
And then on the cash flow side we used cash in the quarter but it's typically a seasonally low cash
quarter, and we had with that decline in revenue that clearly impacts our working capital.
So, you know, I would say again mixed results for the quarter, clearly some areas where we need to
reignite some growth in the business and drive some revenue improvement as we move forward.
ROB WILLIAMS: Thanks.
Steve, similar results as you break down the global business segments, some real progress but some
areas where we did see some additional -- some additional pressures. So, could you go ahead and
break down each of those segments for us and talk through that?
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STEVE FELICE: Sure, Rob. Why don't we start off with some of the things we liked about the quarter
and then we'll move into some of the challenges, but first and foremost I think the strategy is clearly
driven towards enterprise services and solutions, and happy to see that, you know, excluding the
EMC business that we've been moving away from, that business grew 5 percent and we saw some
really strong performance on the storage side.
The acquisition performance continues to be good. We had several cases where we're really starting
to see good ramps like Compellent and, of course, Force10, and now we're taking on some more new
intellectual property with SonicWALL and AppAssure, and we like what we're seeing out of the gate
here.
ROB WILLIAMS: Great. Could you give us your view on services?
STEVE FELICE: Sure, Rob. Yeah, services was another highlight. The backlog stood at 15.4 billion,
which was up 9 percent year over year. The new signings were 1.8 billion, which was up 80 percent
over the previous year if you look at a trailing 12 months of signings; so very strong performance for
the services business.
Where you saw that manifest itself the most was in our SMB business where we saw good growth
around the world, 4 percent overall but as high as 10 percent in Asia, and that's really the business
where we've probably been the most mature in moving through this transformation, so you'd expect
to see the most progress there.
When we look at some of the other businesses we saw a variety of challenges. In the large
enterprise space we were down about 3 percent for the year, year over year. And, you know, when I
look at that the pipelines were pretty healthy, but we clearly saw customers putting some decisions
off. Pipelines remain healthy. So, I think this is a case of getting these things converted into -- into
actual sales.
ROB WILLIAMS: Right.
STEVE FELICE: Public space had a variety of ups and downs. The overall business was down 4
percent. The one bright sign that we saw was that the federal spending started to come back, which
I think is a good sign, especially heading into a seasonally stronger quarter in the U.S. for fed, but we
did see weakness in health care and we saw some weakness in the state and local type of business,
so the -- and the elementary ed business. So, the smaller type business we saw budget constraints,
and that held the overall growth down.
Consumer was probably the most challenged where we saw revenue down 12 percent. This is where
we're seeing a lot of budgetary constraints that basically result in consumers still buying products but
moving to the lower end, moving to the lower price point products, and this is an area where we've
chosen not to have a strong participation. We don't see a lot of profit there, and so, you know, we
had to make sure we stuck with our strategy. The XPS line grew in a very healthy way, up about 33
percent, but it's not big enough yet to offset the shift that we're making away from the lower end
products to the higher end.
ROB WILLIAMS: Right, right.
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You've now had the global sales and marketing function for about a quarter now, just over a quarter.
Talk to us about some of the things that you've found as you looked at how that organization was
executing from a sales execution model standpoint and some of the changes that you're making as
we enter Q2 and as we roll through the back half of the year.
STEVE FELICE: Well, as you know, Rob, we've been really pushing an acceleration of the
transformation.
ROB WILLIAMS: Right.
STEVE FELICE: I mean, that's -- we feel very good about where we're headed and we want to get
there as fast as we can. I think what we've noticed over the past quarter as we put the business
together is there's some things we can do better as we shift the way we're going to market. A few
things in particular that we noticed is as we've added a lot of specialists and we've tried to fill some
coverage areas around the globe for product specific needs, we found some holes in geographic
coverage and some customer specific coverage. So, we're reallocating some of our resources to
better map where we see the opportunities.
We also saw that with a lot of the complexity of the transformation we can -- we can have the
tendency to over-specialize. You know, there's some areas where we probably have too many
resources on one particular product rather than think of it as selling a solution. And so we're
rebalancing some of these specialists and trying to simplify some of the go-to-market models so that
we're talking more about the core of Dell's products, surrounded by all the features and great
intellectual property from the acquisitions, rather than thinking of everything as a point product.
ROB WILLIAMS: Right, right. That's really helpful, Steve; thanks.
Brian, pulling that all together, give us a view towards Q2 and the outlook.
BRIAN GLADDEN: Yeah, as you think about second quarter, we would typically see the public
business pick up with state and local increases. We're looking at what we would say is typical
seasonality for the second quarter in terms of revenue growth. So, in the range of 2 to 4 percent is
what we would say.
As we think about the total year, you know, we really would like to take the second quarter to watch
the dynamics, given the uncertainty we see in the marketplace, given some of the challenges we had
coming out of the first quarter. So, we would intend to provide an update on the total year really as
we do our second quarter earnings call in August.
ROB WILLIAMS: Well, Brian, I appreciate it and thanks for the view; and Steve, thanks for your
insight on the business, and we look forward to a good Q2.
And thank you for joining us on Dell Shares. We look forward to your questions and comments, and
thank you.
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