Dell's earnings are up and expectations are solid, but the company's stock still took a hit Friday afternoon after analysts signaled the company isn't playing a key role in the PC market recovery. Dell's shipments were flat in the third quarter and down five percent from the year-ago period despite improvements in the large-enterprise  and small-and-midsize business segments and increased demand and revenue from business customers.
Dell's total revenue for the third quarter was $12.9 billion, a one percent improvement over the second quarter but a 15 percent decline from the year-ago period. Earnings per share were 17 cents. Cash flow from operations totaled $801 million. Operating expenses were 12.8 percent of revenue, or $1.7 billion, 10 percent lower than last year's third quarter.
"We are seeing improvement in overall underlying IT demand that is continuing into the fourth quarter," said Michael Dell, chairman and CEO. "The same is true with momentum in Dell's business, specifically in our large-enterprise and SMB segments. The launch of Windows 7 is being very well received by SMBs and consumers, and we'll see the benefits of that more fully in our fiscal Q4."
An Active Third Quarter
Dell had an active third quarter. The company completed the acquisition of Perot Systems in early November. Dell hopes the acquisition will give the company an advantage in delivering more practical solutions to help customers reduce IT costs. Dell is in the process of integrating Perot Systems into its business.
"Consistently generating strong cash from operations allows us to expand our own capabilities and acquire new ones," said Dell CFO Brian Gladden. "Those investments will mostly be in higher-margin enterprise solutions, like our purchase of Perot Systems. Adding Perot best positions us to provide streamlined solutions that help customers get the most from their IT budgets."
Dell had a strong quarter with its enterprise-systems business. Server and storage revenue were up a combined five percent with particular strength in year-over-year EqualLogic sales. Dell believes its strategy to design and deliver practical, standards-based solutions for the data center and the cloud is resonating with customers looking to reduce complexity, improve efficiency , and lower costs. (continued...)
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