The headline read, "Dell's business priorities drive revenue up 10 percent in fourth quarter." The real story was that profits slumped 6.5 percent because of a bevy of charges.
What it means is that Michael Dell still has a lot of work ahead. Dell has already fired 3,200 employees in the last eight months to get costs down. But the restructuring work isn't over and it will impact future earnings. (In the press release, Dell's PR team put it more delicately, allowing that "the company will continue to incur costs as it realigns its business to improve growth and profitability." (Here's the Reuters wire story.)
Donald Carty, the company's vice chairman and chief financial officer, started off the post-earnings conference call today by cautioning that "we clearly have a lot more work to do on cost." If you prefer the glass half-full approach, this was the first time in the last three years that Dell posted double-digit quarterly growth. The company posted strong laptop PC sales and enjoyed overseas growth. True enough but don't pop champagne corks just yet: Dell's top line growth still came in around $200 million shy of Wall Street expectations.
The problem is that Dell's far removed from the days when its manufacturing and distribution system was the envy of the industry. Over at Hewlett-Packard, now the world's largest PC maker, Mark Hurd has proved a master at maintaining a relatively lean cost structure while pushing his sales force to ring up bigger numbers.
The company's no longer a pure play direct seller. There was a time when price and distribution were good enough. But with buying tastes evolving, Dell's been branching out into retailers including Best Buy, Wal-Mart and Staples. That may work out to Dell's advantage but management is going to face a new set of business issues associated with an increasingly hybrid distribution system.
On the conference call, Michael Dell said the company was "managing closely and watching closely "the stocking levels during the transition. But he passed when a questioner asked about the level of channel inventory right now. "We're still learning how to balance it perfectly but pretty pleased with our progress at this stage."
That's a big comedown from the go-go era when Dell was running circles around the competition - and crowing loudly about it. Why have costs gone up so sharply? Dell sought to assuage concerns on the call with a heavy helping of business platitudes. I don't know if he convinced many listeners. Tony Sacconaghi with Sanford Bernstein wasn't buying it. He pointed out that SGA expenses have climbed 46% in the last couple of years. Carty, who disconcertingly sounds like the cartoon character, Foghorn Leghorn, acknowledged that Dell wasn't "as prudent with cost controls" as it ought to have been. That rates as understatement of the day.