Dell's fiscal first quarter earnings were better-than-expected as the company's enterprise sales offset weak consumer PC demand. However, storage revenue took a hit as Dell's partnership with EMC began to wind down.
The company reported net income of $945 million, or 49 cents a share, on revenue of $15 billion, up 1 percent from a year ago. Non-GAAP earnings were 55 cents a share. Wall Street was expecting earnings of 44 cents a share on revenue of $15.4 billion. In other words, Dell did a nice job managing costs and cash flow even as revenue was lighter than expectations.
Dell's earnings report landed just a few hours after Hewlett-Packard's disappointing outlook. HP is also trying to offset falling consumer PC sales.
As for the outlook, Dell projected "mid-single digit revenue growth" in the second quarter. That projection is a bit above seasonal projections. Dell said that the public sector business---state and local governments and education---is expected to be strong. SMB sales are also expected to be strong due to Dell systems with the new Intel Sandy Bridge chips. Toss in back to school sales and Dell is relatively upbeat.
For fiscal 2012, Dell is projecting revenue growth of 5 percent to 9 percent and non-GAAP operating income gains of 12 percent to 18 percent from the prior year.
Among the moving parts in the first quarter:
- Server and networking revenue was up 11 percent.
- Dell-owned storage technology---Compellent, EqualLogic, PowerVault and DX Object Storage---saw an 11 percent sales gain from a year ago. Those gains, however, were wiped out by falling sales of EMC storage. Dell and EMC were long-time partners, but increasingly the two sides compete.
- Large enterprise revenue was $4.5 billion, up 5 percent from a year ago, with operating income of $504 million. Enterprise services revenue was $1.8 billion, up 2 percent. PC sales to the enterprise were up 7 percent from a year ago.
- Consumer revenue was $3 billion, down 7 percent from a year ago amid soft demand. However, Dell's consumer unit delivered operating income of $136 million. In the same quarter a year ago, Dell's consumer unit had operating income of $17 million. Dell cited a simplified brand structure as well as component costs for the operating profit.
- Public revenue was $3.8 billion, down 2 percent from a year ago. Server revenue was up 9 percent in the public sector. Operating income was $370 million.
- Dell's SMB unit had revenue of $3.8 billion, up 7 percent from a year ago. Operating income was $463 million.
- Growth markets now represent 27 percent of total revenue. India sales were up 28 percent and China revenue was up 22 percent from a year ago.
As for the company's strategy going forward, Dell CEO Michael Dell said the company will invest $1 billion in research and development and organic growth. The primary focus will be data center efficiency, cloud computing and software.