Here's The Good News Buried In Dell's Awful Quarter

Michael Dell

Photo: AP

Dell’s stock is crashing today thanks to the awful quarterly results the company reported yesterday after market close. It’s down over 7%.Dell revealed a lot of bad news, but amidst it, there are signs that Dell’s turnaround into an enterprise company is starting to take hold.

The company missed analysts’ expectations of $13.9 billion in revenues and $0.40 in earnings per share. The actual numbers: $13.7 billion in revenue and $0.39 in EPS.

Not a huge miss in absolute numbers, but the expectations were “very low-bar,”  Sterne Agee’s Shaw Wu wrote in a research note issued today. Dell missed its own guidance for the quarter, too. It had promised $13.8 billion to $14.2 billion in revenues. Then it turned around and offered guidance for the next quarter lower than what Wall Street was looking for: $14 billion to $14.4 billion, versus consensus revenues of $14.5 billion.

A painful decline in the PC business accounts for much of Dell’s problems.

“PC sales were down a steep 19%, including off 8% in desktops and a horrible 26% decline in laptops,” UBS analysts wrote in a research note today. “Windows tablet success can’t come too soon.”

Now for the good news: Dell’s enterprise services revenue grew 3 per cent, year over year, to $4.8 billion. A unit that sells server and networking equipment grew 11 per cent.

“Although growth slowed, we think Dell’s enterprise business could be a sleeper,” UBS’s analysts wrote. “The company’s goal is to grow enterprise computing’s operating income contribution from about 45% today to 60% in F2016,” adding that they are “optimistic” that Dell’s turnaround could be strong by 2015.

Plus, Dell ended the quarter with $14.2 billion in cash and investments. It’s using that money to buy its way deeper into the enterprise through acquisitions.

The company made another buy today, picking up 67-employee Gale Technologies for an undisclosed sum. The company makes a product called GaleForce that lets enterprise automatically move data between their own data centres and various clouds.

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