Dell Revenue Up, EPS Exceeds

Dell Inc. (DELL: 13.47 -0.959 -6.65%) reported fourth quarter 2010 EPS of 28 cents, exceeding the Zacks Consensus Estimate of 27 cents.

Revenue

Revenue for the quarter was $14.9 billion, up 11.0% from $13.4 billion reported in the year-ago quarter and up 16.0% from $12.9 billion reported in the previous quarter. The company’s fourth quarter revenue growth can be attributed to an improvement in revenue in all business segments, especially due to growth in the commercial business, fueled by growth in Enterprise Technology and also due to increase in product shipments, as the company reported its first consolidated results after the Perot acquisition.

Revenue by Segment

Large Enterprise posted revenue of $4.2 billion, an increase of 23.0% sequentially and 8.0% year-over-year. In the fourth quarter, the company witnessed a very strong pickup in demand, with large enterprise units improving 14% versus the third quarter.

Public revenue for the quarter was $3.8 billion, up 16.0% from the year-ago quarter. Under this segment, Services revenue more than doubled, derived from efficient solutions provided by Perot Systems to the company’s government and healthcare customers.

Small and Medium Business revenue for the quarter was $3.3 billion, up 10.0% from the year-ago quarter. Shipments increased 9% sequentially. This can be attributed to stronger sales of mobile computing products and servers, which increased 18.0%.

Revenues for Consumer Business grew 11.0% year-over-year to $3.5 billion, with shipments growing 29% year over year and 23.0% sequentially. Under this segment, revenue from consumer mobility products was up 26.0%.

In fiscal year 2010, the company expanded its consumer product portfolio and worldwide customer reach through different channels, which resulted in a 2 million unit increase in product shipments compared to the previous year.

Total sales from BRIC countries (Brazil, Russia, India and China) increased strongly, as revenue was up 72.0% to 81.0% in China, driven by increases in SMB and Large Enterprise businesses.

Operating Results

Gross margin for the quarter was 16.6%, below the 17.3% reported in the third quarter of 2009. The decline in gross margin was the result of strength in demand for low-margin consumer products. In addition, operating expenses increased 6.0% from the year-ago quarter, as a result of increase in both SG&A and R&D expenses. This translated into an operating margin of 3.4%, flat compared to the year-ago quarter.

Earnings per share during the quarter were $0.17, down from $0.18 reported in the year-ago quarter and flat compared to $0.17 reported in the previous quarter. Excluding special items like amortization of intangibles, severance cost, acquisition related cost, stock compensation expenses and adjustment of income taxes, the EPS for the quarter was $0.28, down from $0.29 reported in the year-ago quarter and up from $0.23 in the previous quarter.

Balance Sheet & Cash Flow

Dell’s cash conversion cycle remained same as the previous quarter at a negative 36 days. Cash flow from operations declined to $1.26 billion from $801.0 million reported in the previous quarter. The company ended the quarter with $11.0 billion in cash and short-term investments versus $13.1 billion in the previous quarter. Long-term debt stood at $3.42 billion at the end of the quarter versus $3.44 billion in the previous quarter.

Guidance

Dell did not provide any guidance for the first quarter, but is cautiously optimistic about improved demand in the commercial business in 2011. However, Public sector demand may be lower. The company is optimistic that it can generate growth in revenue, operating income margin and cash flow going forward.