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Is Dell Really an Enterprise Company? The Numbers Say No


Dell reported lousy fourth-quarter results after the close yesterday, and the stock's getting trashed this morning.

Dell (DELL) reported fourth-quarter earnings after the close yesterday, giving further credence to the notion that we are full-blast into an Apple (AAPL) dominated post-Windows PC era.

Dell's revenue rose a miserly 2% to $16 billion, slightly edging out the consensus forecast while earnings came in at $0.51 per share, missing by a penny. Gross margins fell a full percentage point year-over-year, mostly due to rising hard-drive prices stemming from the Thailand floods.

In terms of product categories, Dell saw the most revenue growth in servers/networking and services, which rose by 6% and 12%, respectively. Desktop PC sales were up 3%, while notebooks rose by 1%. Storage and software were both down year-over-year.

Looking at customer segments, Dell saw the most growth in large enterprise (5%), while consumer (-2%) was notably weak.

On the guidance side, Dell sees full-year earnings coming in at $2.13 per share, or 4% above Wall Street's expectations. However, first-quarter revenues are expected to be $14.9 billion, which is below consensus.

Dell is trading down sharply this morning, which I regard as a product of it rising 24% year-to-date going into yesterday's report, and the fact that there has been more than enough time for analysts to have adjusted their numbers to reflect issues like the Thailand floods and Apple's skyrocketing market share.

Now, Dell is clearly trying to reposition itself as an enterprise specialist. Just look at the title of its earnings release:

Dell Record Fiscal Year 2012 Highlighted By Enterprise Solutions and Services Strength

However, a look at the press release indicates that, despite the company's revenue momentum with large enterprises and small businesses (if you can call 5-6% growth momentum...), the customer mix just hasn't changed. Check out this chart detailing Dell's Q4 customer-segment mix relative to last year.

The mix is basically a mirror of last year.

Dell is marketing itself to investors as an IBM (IBM) style enterprise hardware and services powerhouse, but the numbers tell us it's not quite happening.

Furthermore, if we look at product segments, we can actually see that Dell's percentage of revenues from PCs rose year-over-year, which means greater exposure to a weak market.

And FYI, Mobility = Laptops.

This wouldn't necessarily be a bad thing if PCs weren't so down in the dumps. Take a look at this chart, which shows year-over-year growth trends in the global PC market during 2011, courtesy of the good folks over at Gartner:

So yes, folks, PC sales were stinking up the joint way before the floods hit Thailand simply because of market saturation -- when was the last time you walked into somebody's house and were surprised that they owned a computer? -- and Apple's growing dominance.

While the overall PC market is slumping, Mac sales are skyrocketing, up some 26% in Q4 while the rest of the industry collapsed. (See: Apple Earnings: Outstanding Achievement in the Field of Excellence)

At the same time, the iPad has destroyed the netbook and low-end laptop markets, and the emergence of heavily-marketed $199 Android tablets from the likes of Amazon (AMZN) and Barnes & Noble (BKS) can't be helping either. (See: Barnes & Noble Takes On Amazon in a Race to the Bottom)

It's simple -- these two companies are driving the price of mobile-computing devices straight through the floor in the name of building digital-content ecosystems, and they're an additional negative driver for sales of low-priced PCs.

And this increasingly challenging PC market is one upon upon which Dell is still dependent for more than 50% of revenues.

Not that it would ever put that in the title of a press release....
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