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Dell Achieves Industry Leading Global Share of 19.3 Percent in Second Quarter
Results Led by Strong Growth in Asia Pacific/Japan Region and Emerging Markets / New Consumer Desktops and Two-Socket Server to Feature AMD Processors
"While we are disappointed with the results for the quarter, we are taking the necessary actions to correct missteps and improve our results for the long term," said Kevin Rollins, Dell chief executive officer. "Key actions include accelerating cost initiatives, increasing investments in service and support, and better pricing management."
Dell Achieves Record Global Share
Dell achieved a record, industry-leading global share of 19.3 percent with units up 6 percent for the quarter. International sales, up 11 percent for the quarter, were led by the Asia- Pacific and Japan region, where Dell moved to the No.2 position. The emerging markets of China, Brazil and India were led by strong unit growth of 37, 77 and 82 percent, respectively. In both China and Brazil, Dell expects to be No. 1 in servers with nearly 26 percent and 41 percent share, respectively.
Cash flow from operations was almost $700 million and Dell ended the quarter with $10.8 billion in cash and investments. Dell spent $1.0 billion in the quarter to repurchase 43 million shares of common stock.
Turnaround in Customer Experience
The company's intense focus on leadership in customer experience has resulted in a significant turnaround in all aspects of customer experience, including satisfaction, purchase and repurchase preferences and support.
These improvements have been validated by recent high-profile industry satisfaction surveys as well as Dell's own internal data. For example:
* Satisfaction - Dell's scores in the annual University of Michigan American Consumer Satisfaction Index (ACSI) improved 2.5 points overall, with specific gains in customer satisfaction, product quality and service quality.
* Purchase Preferences - The Investor Business Daily/TIPP Home Computer Purchase Outlook Index survey reported Dell was the preferred brand among 50 percent of likely computer buyers in the July poll versus 41 percent in June (next competitor was at 12 percent of respondents). Among likely notebook computer buyers, Dell was the No. 1 choice of 60 percent of the respondents.
It is the highest score for Dell in this category in almost three years.
* Likely to Repurchase - Dell's internal "Likely to Repurchase" data registered its highest results for the past six quarters with a 6.5 percent increase for relationship customers and a 5.0 percent gain for transactional customers.
* Service Innovation - DellConnect, a new service innovation, has met with great acceptance, as more than one million customers have now used the service. DellConnect allows Dell technicians to fix computer issues remotely and for free. Ninety-four percent of customers who have received service say it makes problem-solving easier and they would recommend it to others.
"While we are not yet satisfied, we are seeing a clear turnaround in service, support and purchase preferences for Dell," said Rollins. "Our response is to increase our investment in the customer experience throughout the world and continue this positive momentum to create the best experience for all of our customers. This is a top priority for us for the long term."
Dell will increase its investment in customer experience - spanning the buying experience through service and support - by an incremental amount of $50 million to $150 million for the fiscal year. The additional investment will accelerate customer experience initiatives throughout the organization.
Dell Announces Extension of Relationship with AMD to Build Best Product Line in Company History
Dell is extending its relationship with AMD, first announced last quarter.
Dell will launch Dimension desktop computers with AMD processors next month and will introduce a two-socket and multi-processor server using AMD Opteron processors by the end of the year.
During the quarter, the company introduced new ninth generation (9G) PowerEdge servers with Intel's latest Xeon 5100 series processors. These systems deliver a 152 percent performance increase over the previous generation and can lower power consumption by up to 25 percent. Dell is enthusiastic about Intel's recent launches of the Core 2 Duo for desktops and Xeon 5100 Series processors for servers and workstations, and the upcoming Merom processor notebooks, which help Dell provide great technology for its customers. Dell's partnerships with AMD and Intel will greatly enhance its ability to end the year with the broadest and best product line in its history.
Total enterprise revenue, which includes servers, storage and associated services and software and peripherals, grew 11 percent year-over-year, led by storage revenue, which was up 36 percent. In Storage, Dell had its first full quarter shipping our new Dell/EMC CX midrange storage systems. Dell also launched two new Network Attached Storage (NAS) storage servers designed on its 9G server platform.
Enhanced services revenue was up 21 percent year-over-year to $1.4 billion.
During the quarter, Dell announced Platinum Plus, a new service for enterprise customers that allows customers to compare critical IT performance metrics to historical results. Customers can also use the Real-Time Tracking Window using Google Earth to view around-the-world, real-time status of service progress. Initial results show customers are immediately benefiting with a significant reduction in resolution time.
In mobility, revenue was up 8 percent year-over-year on 22 percent unit growth. Dell is a leader in embedded wireless broadband. The company has finished a major upgrade of our notebook portfolio, including the 3-pound Latitude D420. The increased security, connectivity, and durability features of these notebooks reflect extensive input received from customers.
Dell's Inspiron E1505 recently received the Best Buy award from Consumer Reports, citing solid multi-media features and competitive price.
Additionally, the E1505 and the XPS M1210 were both selected as Top 10 Back to School Systems by Laptop magazine. Desktop computer revenue decreased 4 percent year-over-year on a 1 percent decline in units.
In software and peripherals, revenue grew 10 percent with imaging revenue up
5 percent year-over-year. Consumables were up 46 percent and accounted for more than 50 percent of Dell's imaging revenue mix.
Total laser printing revenue was up 34 percent. Dell launched its third generation of laser printers, including six new color, multi-function, and mono lasers, delivering superior cost per page results for our customers.
The product line refresh is led by the 3110cn printer, which is three times faster than its predecessor and delivers enterprise level color laser performance at less than half the price of a comparable competitor model.
Dell's Record Global Share Gain led by International Markets
In the Asia-Pacific and Japan region, Dell had unit growth of 27 percent; almost triple the rate of the industry, excluding Dell. This allowed the company to move into the No. 2 position in the region with 11.1 percent share, up 1 percentage point year-over-year. In Japan, Dell also moved to the No. 2 position with 16.1 percent share.
In Dell's Americas region, revenue was up 3 percent year-over-year, led by
29 percent growth in Americas International as the countries outside of the U.S. approached a $4 billion run rate. In the U.S., revenue growth was 1 percent. Dell gained two share points sequentially and has 34.2 percent share for the U.S. market, which is larger than its next three competitors combined.
In Western Europe, the market's overall revenue decreased due to a slowdown in commercial, but Dell's share in the overall region reached an all time high of 14 percent with revenue up 3 percent year-over-year and unit growth of 6 percent.
In August 2005, Dell received notice from the U.S. Securities and Exchange Commission that it was conducting an informal investigation of the company.
The notice stated that the investigation is not an indication that any violations of law have occurred. The SEC has requested information relating to revenue recognition and other accounting and financial reporting matters for certain past fiscal years, and Dell has been cooperating. In the course of responding to the requests, the company recently discovered information that raises potential issues relating to certain periods prior to fiscal 2006. While the company does not believe that these issues have had or will have any material impact on its financial position or the reported results of operations for the relevant years, the company's audit committee, upon the recommendation of management, has initiated an independent investigation. Management is committed to addressing any questions, concerns or issues the SEC or the audit committee may have.
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