Dell’s investment in differentiated enterprise solutions and services has continued to drive gains in the it profitability in the fiscal second quarter, with operating income rising significantly on a 1% revenue increase.
Dell’s mid-market design focus on next-generation computing solutions and intelligent data management; services, security and cloud; and end-user computing is driving the shift in the company’s mix to a higher-value portfolio and resulting in sustainable, improved results. The company’s GAAP operating income of 7,7% of revenue year to date and 7,3% of revenue over the past four quarters is in line with its long-term value creation framework goal of more than 7%.
Growth in enterprise businesses highlighted the quarter. Solid demand for Dell’s server, storage and services portfolio reflects increasing customer preference for the company’s highly capable, affordable and flexible solutions and services.
The company has continued to make prudent investments to develop and acquire industry-leading systems management, storage, security and networking intellectual property. Dell is also increasing investment levels in sales and go-to-market capabilities. These investments contributed to the solid operating income and strong cash-flow generation in the quarter and first half.
Revenue in the quarter was $15,7-billion, up 1% over last year and 4% sequentially.
GAAP earnings per share was 48 cents, up 71%; non-GAAP EPS was 54 cents, up 69%. Vendor settlements resulted in approximately $70-million in benefit in the quarter that increased non-GAAP gross margins 50 basis points and non-GAAP earnings per share by 4 cents.
GAAP operating income was $1,1-billion, or 7,3% of revenue. Non-GAAP operating income was $1,3-billion, or 8,5% of revenue.
Cash flow from operations was $2,4-billion for the quarter and $5,2-billion over the last four quarters. Dell ended the quarter with a record high $16,2-billion in cash and investments and repurchased $1,1-billion in stock in the quarter.
Revenue for Dell’s commercial business was $12,8-billion, up 6% sequentially and 1% from a year ago.
Enterprise solutions and services revenue grew 4% to $4,6-billion in the quarter and represents 35% of Dell’s commercial revenue. Servers and networking revenue increased 9% year over year.
Dell Services revenue grew 6% to $2-billion. Dell’s total value of new services contracts signed in the last quarter is $1-billion and $1,3-billion year-to-date; and services backlog is now $15,4-billion up 11%from a year ago. Demand for Dell SecureWorks managed services offerings continued to expand, with more than 200 customers added during the quarter.
Dell-owned storage technology grew 15% in the quarter. The benefits of Dell’s mid-market design focus are evident in the success of EqualLogic, which continues to be a highly profitable line of storage products . In addition, revenue in the company’s Compellent storage business grew 97% sequentially, after closing the acquisition in Q1.
The Large Enterprise business unit had $4,6-billion of revenue, up 1% from a year ago on strong demand for servers and services. Operating income was $448-million, or 9,8% of revenue. Enterprise solutions and services revenue was $1,9-billion, a 3% sequential increase. Revenue from client products grew 1% for the year and 4% sequentially.
Public had record operating income of $484-million or 10,9% of revenue. Revenue was $4,5-billion, up 18% sequentially and down 3% for the year. Enterprise solutions and services revenue was up 7% sequentially. Client product revenue increased 34% sequentially.
Small and Medium Business had revenue of $3,7-billion, up 5%. Operating income was $404-million or 10,9% of revenue. Enterprise solutions and services revenue was up 16%, driven by a gain in servers of 17%; services of 17%, and storage of 11%.
Consumer revenue was $2,9-billion, a 1% increase, with revenue for laptops and desktops up 4%. Operating income was $73-million or 2,5% of revenue.
Growth countries outside of the US and Canada, Western Europe and Japan increased revenue 14% over the previous year and now account for 28% of Dell’s total revenue. Specifically, India and China were up 21% and 20%, respectively.
Michael Dell, chairman and CEO, comments: “We continue to see great momentum in the high-growth areas of our business, which is a direct reflection of the discipline and strong execution our global Dell team is applying to help solve real-world challenges for our customers. We’re creating efficiency across every step of the IT value chain and ultimately enabling all customers—from home users to large businesses and government organizations—to achieve the outcomes that matter most to them.”
Brian Gladden, chief financial officer, adds: “Our results for the first half of the fiscal year reflect our commitments and are enabling us to accelerate the reshaping of our portfolio while delivering substantially higher operating income. We’re maintaining our focus on developing higher-value solutions and services to drive stronger profitability and smartly manage a balance of growth, increased operating income and cash flow.”