Dell Inc. (DELL) reported third quarter 2010 EPS of 23 cents, below the Zacks Consensus Estimate of 27 cents.
Revenue
Revenue for the quarter was $10.75 billion, down 17.0% from $12.97 billion reported in the year-ago quarter and up 1.0% from $10.62 billion reported in the previous quarter. The company’s third quarter reported revenue was adversely affected by the timing of the Windows 7 launch and due to backlog buildup in the company’s SMB and consumer businesses.
Revenue by Segment
Large Enterprise posted revenue of $3.4 billion, an increase of 4.0% sequentially and decline of 23.0% year-over-year. In the last quarter, the company expended its networking partnership with Brocade and Juniper, and introduced products like PowerEdge 11g servers and expanded PowerVault storage systems.
Public revenue for the quarter was $3.7 billion, down 3.0% on sequentially and 7.0% from the year-ago quarter. Shipments were down 12.0% on a sequential basis, due to seasonality in the U.S. public sector business.
Small and Medium Business revenue for the quarter was $3.0 billion, up 5.0% sequentially and down 19.0% from the year-ago quarter. Shipments increased 9% sequentially. The segment benefited from steadily improving demand in both the Americas and the Asia-Pacific region, as well as better performance in EMEA during the second half.
Revenues for Consumer Business were down 10.0% year-over-year, but flat sequentially to $2.8 billion with shipments growing 4% sequentially.
Dell’s total sales in China, India, Brazil and Russia increased 18.0% sequentially and 5.0% over last year. China, the second-largest revenue generating country for Dell, reported revenue increase of 20.0% sequentially and 8.0% from the year-ago quarter.
Operating Results
Gross margin for the quarter was 17.3%, below 18.8% reported in the third quarter of 2009. The decline in gross margin took place as gross profit declined at a higher rate than revenue.
In addition, operating expenses declined 10.0% from the year-ago quarter, as a result of a decline in both SG&A and R&D expenses. This translated into an operating margin of 4.5% versus 6.7% in the year-ago quarter. Tax rate for the third quarter was 34.5%, compared to 28.0% in the year-ago quarter.
Earnings per share during the quarter were $0.17, down from $0.37 reported in the year-ago quarter and $0.24 reported in the previous quarter. The EPS for the quarter included a pre-tax expense of expense of $123.0 million or $0.05 per share and $40.0 million or $0.01 per share for amortization of intangibles. Excluding that, the EPS for the quarter comes to $0.23.
Balance Sheet & Cash Flow
Dell’s cash conversion cycle improved by a day to negative 36 days. Cash flow from operations declined to $801.0 billion from $1.0 billion reported in the previous quarter. The company ended the quarter with $13.12 billion in cash and short-term investments versus $11.99 billion in the previous quarter. Long-term debt stood at $3.44 billion at the end of the quarter versus $3.39 billion in the previous quarter.
Guidance
Dell did not provide any guidance for the fourth quarter, but expects seasonal improvement in demand from the consumer end market. However, Public sector demand may be lower. The company expects fourth quarter revenue to improve over the third quarter.
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