Dell Reports Fiscal Year 2014 Second Quarter Financial Results

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Dell Reports Fiscal Year 2014 Second Quarter Financial Results

  • Revenue of $14.5 billion, flat year over year
  • Enterprise Solutions, Software and Services revenue up 9 percent
  • GAAP earnings of $0.12 per share; non-GAAP earnings of $0.25 per share

ROUND ROCK, Texas--(BUSINESS WIRE)-- Dell today announced fiscal 2014 second quarter results, with revenue of $14.5 billion, GAAP earnings of $0.12 per share and non-GAAP earnings of $0.25 per share. The company's Enterprise Solutions, Services and Software (ES&S) revenue was $5.8 billion, growing 9 percent year over year, including the benefit of the Quest acquisition. In End User Computing, revenue was down 5 percent year over year.

"In a challenging environment, we remain committed to our strategy and our customers, and we're encouraged by increasing customer interest in our end-to-end solutions offerings and continued growth in our Enterprise Solutions, Services and Software businesses," said Brian Gladden, Dell chief financial officer.


  • Revenue in the quarter was $14.5 billion, flat from the previous year.
  • GAAP operating income for the quarter was $272 million, or 1.9 percent of revenue. Non-GAAP operating income was $602 million, or 4.1 percent of revenue.
  • GAAP earnings per share was 12 cents, down 71 percent from the previous year; non-GAAP earnings per share was 25 cents, down 50 percent.
  • Cash flow from operations in the quarter was $1.7 billion. Dell ended the quarter with $13.9 billion in cash and investments.

Fiscal-Year 2014 Second Quarter Results

    Second Quarter
(in millions) FY14     FY13     Change
Revenue $ 14,514     $ 14,483     0 %
Operating Income (GAAP) $ 272 $ 901 (70 )%
Net Income (GAAP) $ 204 $ 732 (72 )%
EPS (GAAP) $ 0.12 $ 0.42 (71 )%
Operating Income (non-GAAP) $ 602 $ 1,123 (46 )%
Net Income (non-GAAP) $ 433 $ 875 (51 )%
EPS (non-GAAP) $ 0.25 $ 0.50 (50 )%

Information about Dell's use of non-GAAP financial information is provided under "Non-GAAP Financial Measures" below. Non-GAAP financial information excludes amortization of purchased intangibles, severance and facility actions, acquisition-related charges, costs incurred in Fiscal 2014 related to Dell's proposed merger, and other items. All comparisons in this press release are year over year unless otherwise noted.

Operating Segments Summary:

  • Enterprise Solutions Group revenue was $3.3 billion, an 8 percent increase. Operating income for the quarter was $137 million, a 9 percent decrease. Dell server, networking and peripherals revenueincreased 10 percent, the fifth consecutive quarter of growth for this business, driven by continued strength in hyper-scale data center servers. Dell networking continued to grow, with a 19 percent revenue increase. Dell storage revenue declined 7 percent.
  • Dell Services revenue was $2.1 billion, up 2 percent, driven by a 3 percent increase in support and deployment revenue and a 5 percent increase for infrastructure, cloud and security services revenue. Applications and business process services revenue declined 6 percent. Total Services operating income was $339 million, a 1 percent increase.
  • Dell Software revenue was $310 million, and recorded an operating loss. The company is continuing to enhance its software capabilities with investments in this business that increase R&D and sales capacity.
  • End User Computing revenue was $9.1 billionin the quarter, a 5 percent decrease. Operating income for the quarter was $205 million, a 71 percent decrease. Dell desktop and thin client revenue increased 1 percent, mobility revenuedeclined 10 percent, and revenue from software from third parties and peripherals declined 5 percent. Dell was the only vendor among the top five worldwide to increase PC unit-shipment share both year over year and sequentially in the past two calendar quarters, according to IDC.

Company Outlook:

Given the company's announcement on Feb. 5 of a definitive merger agreement to take Dell private, the company is not providing an outlook.

About Dell

Dell Inc. (NAS: DELL) listens to customers and delivers innovative technology and services that give them the power to do more. For more information, visit To communicate directly with Dell, go to Follow Dell on its Investor Relations Twitter account at: or hashtag #DellEarnings.

Non-GAAP Financial Measures:

This press release includes information about non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share (collectively with non-GAAP gross margin and non-GAAP operating expenses, the "non-GAAP financial measures"), which are not measurements of financial performance prepared in accordance with U.S. generally accepted accounting principles. In the following tables, Dell has provided a reconciliation of each historical non-GAAP financial measure to the most directly comparable GAAP financial measure under the heading "Reconciliation of Non-GAAP Financial Measures." Dell encourages investors to review the reconciliation in conjunction with Dell's presentation of these non-GAAP financial measures.

Special Note on Forward-Looking Statements :

Statements in this press release that relate to future results and events are forward-looking statements and are based on Dell's current expectations. In some cases, you can identify these statements by such forward-looking words as "anticipate," "believe," "could," "estimate," "expect," "intend," "confidence," "may," "plan," "potential," "should," "will" and "would," or similar expressions. Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements because of a number of risks, uncertainties and other factors, including: effects of Dell's proposed merger; intense competition; Dell's reliance on third-party suppliers for product components, including reliance on several single-sourced or limited-sourced suppliers; Dell's ability to achieve favorable pricing from its vendors; weak global economic conditions and instability in financial markets; Dell's ability to manage effectively the change involved in implementing strategic initiatives; successful implementation of Dell's acquisition strategy; Dell's cost-efficiency measures; Dell's ability to effectively manage periodic product and services transitions; Dell's ability to deliver consistent quality products and services; Dell's ability to generate substantial non-U.S. net revenue; Dell's product, customer, and geographic sales mix, and seasonal sales trends; the performance of Dell's sales channel partners; access to the capital markets by Dell or its customers; weak economic conditions and additional regulation affecting Dell's financial services activities; counterparty default; customer terminations of or pricing changes in services contracts, or Dell's failure to perform as it anticipates at the time it enters into services contracts; loss of government contracts; Dell's ability to obtain licenses to intellectual property developed by others on commercially reasonable and competitive terms; infrastructure disruptions; cyber-attacks or other data security breaches; Dell's ability to hedge effectively its exposure to fluctuations in foreign currency exchange rates and interest rates; expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other compliance matters; impairment of portfolio investments; unfavorable results of legal proceedings; Dell's ability to attract, retain, and motivate key personnel; Dell's ability to maintain strong internal controls; changing environmental and safety laws; the effect of armed hostilities, terrorism, natural disasters, and public health issues; and other risks and uncertainties discussed in Dell's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for its fiscal year ended February 1, 2013, as amended on June 3, 2013. Factors or risks that could cause Dell's actual results to differ materially from the results it anticipates also include: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; (2) the inability to complete the proposed merger due to the failure to obtain stockholder approval for the proposed merger or the failure to satisfy other conditions to completion of the proposed merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction; (3) the failure to obtain the necessary financing arrangements set forth in the debt and equity commitment letters delivered pursuant to the merger agreement; (4) risks related to disruption of management's attention from the Company's ongoing business operations due to the transaction; and (5) the effect of the announcement of the proposed merger on the Company's relationships with its customers, operating results and business generally. Dell assumes no obligation to update its forward-looking statements.

Additional Information and Where to Find It

In connection with the proposed merger transaction, the Company filed with the SEC a definitive proxy statement and other relevant documents, including a form of proxy card, on May 31, 2013, and a revised definitive proxy statement on August 14, 2013. The definitive proxy statement and a form of proxy have been mailed to the Company's stockholders. Stockholders are urged to read the proxy statement and any other documents filed with the SEC in connection with the proposed merger or incorporated by reference in the proxy statement because they contain important information about the proposed merger.

Investors will be able to obtain a free copy of documents filed with the SEC at the SEC's website at . In addition, investors may obtain a free copy of the Company's filings with the SEC from the Company's website at or by directing a request to: Dell Inc. One Dell Way, Round Rock, Texas 78682, Attn: Investor Relations, (512) 728-7800, .

The Company and its directors, executive officers and certain other members of management and employees of the Company are "participants" in the solicitation of proxies from stockholders of the Company in favor of the proposed merger. Information regarding the persons who, under the rules of the SEC, are participants in the solicitation of the stockholders of the Company in connection with the proposed merger and their direct or indirect interests, by security holdings or otherwise, which may be different from those of the Company's stockholders generally, are set forth in the proxy statement and the other relevant documents filed with the SEC. You can find information about the Company's executive officers and directors in its Annual Report on Form 10-K for the fiscal year ended February 1, 2013, as amended on June 3, 2013.

Consolidated statements of income, financial position and cash flows and other financial data follow.

Dell is a trademark of Dell Inc. Dell disclaims any proprietary interest in the marks and names of others.

Condensed Consolidated Statement of Income and Related Financial Highlights
(in millions, except per share data and percentages)
Three Months Ended % Growth Rates
August 2, May 3, August 3,
2013 2013 2012 Sequential Yr. to Yr.
Net revenue
Products $ 11,326 $ 10,902 $ 11,403 4 % (1 %)
Services, including software related   3,188     3,172     3,080   1 % 4 %

Total net revenue

  14,514     14,074     14,483   3 % 0 %
Cost of net revenue
Products 9,767 9,244 9,280 6 % 5 %
Services, including software related   2,058     2,083     2,065   (1 %) 0 %
Total cost of net revenue   11,825     11,327     11,345   4 % 4 %
Gross margin 2,689 2,747 3,138 (2 %) (14 %)
Operating expenses
Selling, general, and administrative 2,097 2,208 1,976 (5 %) 6 %
Research, development, and engineering   320     313     261   2 % 23 %
Total operating expenses   2,417     2,521     2,237   (4 %) 8 %
Operating income 272 226 901 20 % (70 %)
Interest and other, net   (53 )   (68 )   (63 ) 21 % 16 %
Income before income taxes 219 158 838 38 % (74 %)
Income tax provision   15     28     106   (46 %) (86 %)
Net income $ 204   $ 130   $ 732   56 % (72 %)
Earnings per share:
Basic $ 0.12   $ 0.07   $ 0.42   71 % (71 %)
Diluted $ 0.12   $ 0.07   $ 0.42   71 % (71 %)
Cash dividends declared per common share $ 0.08 $ 0.08 $ -
Weighted average shares outstanding:
Basic 1,757 1,748 1,747 0 % 1 %
Diluted 1,764 1,761 1,753 0 % 1 %

Percentage of Total Net Revenue:

Gross margin 18.5 % 19.5 % 21.6 %
Selling, general, and administrative 14.4 % 15.7 % 13.6 %
Research, development, and engineering 2.2 % 2.2 % 1.8 %
Operating expenses 16.6 % 17.9 % 15.4 %
Operating income 1.9 % 1.6 % 6.2 %
Income before income taxes 1.5 % 1.1 % 5.8 %
Net income 1.4 % 0.9 % 5.1 %
Income tax rate 6.9 % 17.6 % 12.7 %
Note: Percentage growth rates and ratios are calculated based on underlying data in thousands.
Condensed Consolidated Statement of Income and Related Financial Highlights
(in millions, except per share data and percentages)
Six Months Ended % Growth Rates
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