Dell 2Q Profits Rise On Enterprise Boost

The computer maker's net income rose 16% overall, spurred by a 38% bump in sales to large enterprises.
Dell reported that profits in the second quarter rose 16%, driven by strong global sales across its enterprise businesses.

The computer maker reported Thursday that for the quarter ending July 31, net income increased to $545 million, or 28 cents per share, from $472 million, or 24 cents a share, from the same period a year ago. Revenue rose 22% to $15.5 billion.

A major contributor to Dell profits was a 38% increase in sales to large enterprises, which spent $4.5 billion in the quarter on Dell products, such as servers and services. Operating income for the business was $288 million, a 68% increase from a year ago.

Revenue from Dell's other commercial businesses, government and small and medium-size businesses, also grew in the double-digits, rising 21% and 25% year over year, respectively.

"We continue to strengthen our portfolio of data center solutions at an aggressive pace with the addition of key IP (intellectual property), talent and technology," Michael Dell, chief executive and company founder, said in a statement. "This quarter’s results are a strong reflection of the progress we’ve made."

Indeed, the company has been shifting its business to more profitable corporate sales, while cutting costs in the less profitable consumer division, Greg Richardson, analyst for Technology Business Research, said. Dell has boosted profits on the commercial side by increasingly bundling its products and services. Dell has obtained the products needed to boost its packaged offerings through acquisitions, such as EqualLogic and Perot Systems.

"TBR expects Dell management to continue to actively transform the company away from point sales of products such as PCs, a less profitable strategy, toward high-value sales of servers, storage systems, services and software, with the aim of improving profitability," Richardson said in a research note.

The importance of the ongoing shift can be seen in the performance of the consumer side of Dell's business in the second quarter. Revenue from consumer PCs was flat at $2.9 billion, while the unit reported a $21 million operating loss.

Looking ahead, Dell did not offer guidance for the third quarter, other than predicting "seasonal improvements from federal government sales and commercial businesses, resulting in a pick-up in the low single digits." The company repeated its outlook from June, when it predicted revenue growth for the year from 14% to 19%.

Dell released earnings the same day as rival Hewlett-Packard. HP reported a 6% rise in profits during the same timeframe to $1.8 billion, or 75 cents a share. Revenue rose 11% from a year ago to $30.7 billion. HP's increase in profits came from higher global sales in its core computer businesses, particularly its corporate and SMB products.