DELL - revs strong and epS .01 ahead, but gross and op margins are light

DELL - revs strong and epS .01 ahead, but gross and op margins are light

· revs came in $14.9B vs. ST $13.8B = better

· op margins 5.3% vs. St 5.7% = light

· EPS came in .28 vs. St .27

· GMs came in 17.4% vs St 18% = light

· Product shipments increased 16 percent (11 percent sequentially), led by an 18-percent rise
in Dell's Small and Medium Business unit and a 29-percent increase in Consumer. Notebook
shipments were up 32 percent year-over-year

· Large Enterprise revenue was $4.2 billion, up 8 percent (23 percent sequentially).

· Consumer revenue was $3.5 billion, an 11-percent increase. Revenue for consumer mobility
products was up 26 percent

· Dell saw demand in the important commercial business continuing to return during the fourth
quarter and is cautiously optimistic that this trend will continue into fiscal-year 2011. The
company is confident in its ability to deliver the right technology to commercial customers
and believes its extensive and ongoing cost actions position it well for this environment of
increased demand. Longer term, the company is confident it can generate growth in revenue,
operating-income margin and cash flow from operations.

· We are encouraged by the underlying demand strength we are seeing across the business, and
particularly our commercial businesses, where we saw double-digit year-over-year growth in
both unit shipments and revenue

· The market demand improvements we saw in our third quarter accelerated into our fourth
quarter

· While our gross margins are very solid in the commercial business units, we did see some
weakness in our overall margin rates, due to the strong seasonal growth of our consumer
business, which also suffered from relatively weak margins during the quarter

· Very positive on Large Enterprise business - In the fourth quarter we saw an unusually strong
pickup in demand. Large Enterprise revenue grew 23% sequentially to $4.2 billion, with units
including 14% versus the third quarter. The business delivered operating income of $281
million, which is 6.7% of revenue or a 160 basis point improvement over the previous
quarter. we do believe that we did see some year-end budget-related activity in the fourth
quarter. And that it will be difficult to repeat going into the first half of the year

· Turning to our Consumer business, Q4 revenue was $3.5 billion, up 25% sequentially and up
11% year-over-year. Consumer has done a phenomenal job building a nearly $6 billion retail
business with 56,000 stores and broad global distribution over the last two years. Operating
income for the quarter was a disappointing $9 million or 0.2% of revenue. Consumer
margins were disappointing in the quarter due to aggressive market pricing dynamics, and the
fact that we also experienced component cost pressure early in the fourth quarter when we
were committed to orders for the holiday with some locked in pricing. They say their 1-2%
op margin target for consumer is achievable in the near-term.

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