Analyst Conference Summary


conference date: November 29, 2007 1:30 PM Pacific Time
for quarter ending: November 2, 2007 (3rd quarter fiscal 2008)

Forward-looking statements

Overview: Growing at a moderate pace, with good net income increase (27%) from year-earlier quarter.

Basic data:

Revenues were $15.65 billion, up 6% sequentially from $14.78 billion and up 9% from $14.42 billion year-earlier.

Net income $766 million, up 3% sequentially from $746 million and up 27% from $601 million year-earlier.

EPS (earnings per share) was $0.34, up 3% sequentially from $0.33, and up 26% from $0.27 year-earlier.


Does not provide guidance. Will continue to incur one-time costs from restructuring and acquisitions.

Conference Highlights:

Generally pleased with progress in quarter. Had problems with backlog in supplies in quarter. Believes making some progress in consumer business despite difficulties. Doing better in commercial segment.

There was strength in mobility (notebook) segment, solid demand in enterprise products. Component costs continued to be favorable. But this was offset by restructuring costs including $50 million for employee reductions and $28 million in audit committee cots. Also, a $45 million tax reduction benefited net income.

Mobility revenues increased 19% on a 25% increase in units shipped. Desktop PC revenue declined 1%. Servers increased 8%. Storage was up 8%. Software and peripherals were up 11%. Enhanced services grew 7%.

Share repurchase program will resume in December. Share repurchase is the primary use of cash, but also needed for acquisitions and global expansion.

Americas region sales grew 7% year over year. Asia was up 18%, with very rapid growth in China and India. EMEA region revenues were up 13%. Russia grew 72%.

Cost of revenue was $12.76 billion. Gross margin was $2.89 billion. Selling, general and administrative expense was $1.90 billion, R&D $159 million, for total operating expense of $2.06 billion. Operating income was $0.83 billion, other income $0.1 billion. Income tax provision was $170 million.

Cash from operations was $1 billion, and cash and equivalents ended at $14.6 billion.

Revenue by category: Desktop PCs $4.8 billion. Notebook PCs $4.7 billion. Servers and networking $1.6 billion. Storage $0.6 billion. Enhanced services $1.4 billion. Software and peripherals $2.5 billion.

Operating expenses still higher than goal; they will continue to work on reducing them.

Now have a 23 year strategic plan (Dell is 23 years old). Strengthened executive team. Improving productivity. Expect to recapture notebook share; entered retail channel (will have 10,000 store presence by year-end); have special lines for small businesses; opened plants overseas close to demand growth.

Global consumer market is growing rapidly and Dell is going after it. Notebook sales both in U.S. and globally will also grow rapidly. Introducing new products to simplify IT management, and that will be a major focus, combined with compatible hardware design. Services will grow as a percent of business revenue; for many customers this is their most pressing need.


Operating leverage in 2008? Believes has room to reduce operating expense.

10% headcount reduction announced earlier in year? Still a target for core business. But other areas will have growth requiring increased headcount. Some reduction will come from automation of manual tasks.

Lower margins in new businesses like retail? Some will be higher gross margins, some lower. Emerging markets have low gross margins, but are growing quickly and have low operating expenses. Retail has lower gross margins than direct to consumer, but also has lower operating expense.

Macroeconomic effects? See some caution is all. There is a lot of upside for us in emerging markets.

How are you doing indirect sales business? We have about a $9 billion product channel business that grew as resellers took advantage of Dell's low prices. We can build in small lots so we can configure to order for customers in store or to replenish exactly the stock that is sold.

Gross margin sequential drop? Q2 was higher than expected, benefitting from steep drops in component prices. Cost declines continued in Q3, but at a much slower pace. Also U.S. consumer segment grew 17% sequentially, and it is a lower gross margin sector.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2007 William P. Meyers