Dell Reports Stabilized Demand

Dell Inc’s (DELL - Analyst Report) revenue for the second quarter of 2010 was $12.76 billion, above the Zacks Consensus Estimate of $12.61 billion. The company reported second quarter EPS of 24 cents, exceeding the Zacks Consensus Estimate of 22 cents.

Revenue for the quarter was $12.76 billion, down 22.0% from $16.43 billion reported in the year ago quarter, and up 3.0% from $12.34 billion reported in the previous quarter. The sequential improvement in revenue can be attributed to the stabilization in the demand, while the year-over-year decline in revenue may be attributed to the decrease in unit shipments (down 14%).

By business unit, Large Enterprise posted a revenue of $3.3 billion, a decline of 3.0% sequentially and 32.0% year-over-year. This unit witnessed lower spending by companies in IT across major markets around the world.

For the Public segment, revenue for the quarter was $3.8 billion up 20.0% on a sequential basis, and down 16.0% decline from the year-ago quarter. The company witnessed growth in government accounts and education business, which was offset to some extent by state local government and healthcare business.

Small and Medium Business revenue for the quarter was $2.8 billion, down 5.0% on a sequential basis and 29.0% from the year-ago quarter. In this segment, the company witnessed a strong demand in Asia offset by a weaker demand in EMEA.

Revenues for Consumer Business were down 9.0% year-over-year, but up 2.0% sequentially to $2.9 billion with a unit growth of 17.0%. The sequential increase in revenue from this segment was a result of higher purchases by IT vendors.

Gross margin for the quarter was 18.7%, above the 17.2% reported in the second quarter of 2009. The increase in gross margin can be attributed to decline in cost of goods sold, competitive pricing and a better product mix. In addition, operating expenses declined 14.0% from the year ago quarter, as a result of decline in both SG&A and R&D cost. This translated into operating margin of 5.2% versus 5.0% in the year-ago quarter. Tax rate for the second quarter was 25.0%, compared to 26.4% in the year-ago quarter.

EPS during the quarter was 24 cents, down from 31 cents reported in the year-ago quarter and up from 15 cents reported in the previous quarter. The EPS for the quarter included a pre-tax expense of expense of $87.0 million or 4 cent per share, excluding that the EPS for the quarter comes to 28 cents.

Dell’s cash conversion cycle remained stable, which improved 7 days sequentially to negative 35 days. Cash flow from operations increased to $1.0 billion from $761 million reported in the previous quarter. The company ended the quarter with $11.99 billion in cash and short-term investments versus $10.12 billion in the previous quarter. Long-term debt stood at $3.39 billion at the end of the quarter versus $2.39 billion in the previous quarter.

Dell did not provide any guidance for the third quarter, but expects seasonal improvement in demand from the consumer and U.S Government businesses. The company will take cost improvement initiatives and will make strategic investments to improve operating efficiency in the long run.

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