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Tech Check
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It's ugly. And getting uglier for Dell [DELL
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].
The company's fourth quarter earnings report is particularly devastating since the company comes up way short as far as Wall Street expectations are concerned, even though analysts have been falling all over each other over the past week to lower estimates. Over and over again. And yet the company couldn't even meet those pessimistic outlooks. And along the way, it seems like the company's been playing with its numbers a bit to soften the blow. More on that below.
Dell reported 18 cents a share on $13.4 billion in revenue against 26 cents and $14.4 billion in respective expectations. Dell also reported a 17.2 percent gross margin versus the 18 percent analysts were anticipating.
And going deeper into the company's report you can plainly see exactly where the weakness comes. I spoke with Shaw Wu earlier today, the Kaufman Bros. IT and Storage analyst who arguably launched the lower-expectation revision cascade last week with pretty dire report on Dell. He was expecting Dell's PC business to post $4.1 billion in revenue, and the company comes up with $3.5 billion instead; $4.3 billion in Mobility with Dell reporting $4 billion instead.
Computer sales represent 56 percent of the company's revenue so a surprisingly weak performance in both those key divisions hurts. As far as the other units are concerned: Software and Peripherals came in at $2.5 billion versus the $2.3 billion Wu projected, so good news there but just barely. Servers and Networking's $1.3 billion was in line with expectations. Same with Services, in line with $1.4 billion in revenue. Storage business generated $692 million in revenue against Wu's projection of $572 million
But wait, it gets worse.
A lot worse, according to Wu who has been studying the numbers. He just called to tell me on a non-GAAP basis, Dell says its EPS was 29 cents, including 11 cents in one-time items. But Wu says wait a second: The company is excluding $143 million in stock based compensation, which it normally includes. Just as rivals Apple [AAPL
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], Hewlett-Packard [HPQ
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] do, and Dell has always done, until now. That works out to about a nickel a share that, on a non-GAAP basis, Dell is saying analysts ought to put back in. Even though it's never done so in the past. Seems like a financial trick to try to get its non-GAAP EPS number closer to what Wall Street was looking for, and do in the CFO's office what the company couldn't do in its sales office.
The problem for Dell is that the biggest chunk of its business, PCs, is seeing the biggest weakness out there in the marketplace. And with average selling prices also in decline, even if the sector begins to pick up steam, it'll need to pick up that much more steam in order to help Dell even a little bit.
To help the company, Dell will increase its cost reduction program, which was designed to cut $3 billion annually by the end of fiscal 2011 to $4 billion instead. While not providing any specific guidance, Dell does say that global IT end-user demand will continue to be uncertain and challenging and it looks like deep cuts will continue at the company.
On this news, Dell shares dipped below $8 a share for the first time since June, 1997.
Questions? Comments?
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