"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.
Second Quarter (in millions, except share data) FY'07(1) FY'06(2) Change ----------------------------- Revenue $14,094 $13,428 5% Operating Income $605 $1,173 (48%) Net Income $502 $1,020 (51%) EPS $0.22 $0.41 (46%) Year to Date (in millions, except share data) FY'07(1) FY'06(2) Change ----------------------------- Revenue $28,310 $26,814 6% Operating Income $1,554 $2,347 (34%) Net Income $1,264 $1,954 (35%) EPS $0.55 $0.78 (29%) 1. Results for the three and six month periods ended Aug. 4, 2006 include stock-based compensation expense of $81 million ($0.04 per share) and $158 million ($0.07 per share) respectively, net of tax, due to the implementation of Statement of Financial Accounting Standard No. 123 (revised 2004) Share-Based Payments, ("SFAS 123(R)"). Dell implemented SFAS 123(R) using the modified prospective method. Accordingly, net income prior to fiscal 2007 includes only compensation expense related to restricted stock awards, but does not include stock-based compensation expense for employee stock options or the purchase discount under Dell's employee stock purchase plan. 2. Results for the second fiscal quarter ended July 29, 2005 include the impact of an $85 million ($0.03 per share) tax benefit related to a revised estimate of taxes on the repatriation of earnings under the American Jobs Creation Act of 2004.
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.
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