Dell Posts a Strong Quarter - But Not Enough

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Despite a record quarter for cash flow from operations, Dell’s second fiscal quarter of 2012 illustrated just how difficult it can be to expand from a consumer-based marketing company that has been stagnating of late into higher-end products targeted at enterprise customers.

Although Round Rock, Tex.-based Dell (NASDAQ: DELL) posted strong diluted earnings per share (EPS) growth for the quarter ended July 29 — $0.54 non-GAAP EPS, up 71 percent from the previous quarter — that wasn’t enough for Wall Street.

Dell’s stock was down 10.44 percent, or $1.65, to $14.15, in mid-day trading Wednesday after announcing its quarterly results after the markets closed Tuesday.

That on quarterly revenues of $15.7 billion, which was up one percent over the same period in fiscal 2011, and four percent sequentially.

“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,” Michael Dell, chairman and CEO, said in a statement.

“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,” Dell added.

Dell posted non-GAAP operating income of $1.3 billion for the quarter — 8.5 percent of revenue. Additionally, the company posted $2.4 billion in cash flow from operations for the quarter, for a total of $5.2 billion over the past four quarters.

Non-GAAP net income was $1 billion, a jump of 60 percent from the same period last year.

Dell officials said the company is revising its non-GAAP operating income growth expectation for fiscal 2012 to 17 to 23 percent year-over-year from previous predictions of 12 to 18 percent.

However, Dell also scaled back its guidance for revenue growth as well.

“Based on strategic decisions to redirect resources from lower- to higher-value solutions and a more uncertain demand environment, the company also is revising its full-year revenue-growth outlook to 1 to 5 percent from the previous range of 5 to 9 percent. In the third quarter, Dell expects to see revenue roughly flat relative to Q2, which is in line with seasonality over the past two years,” the company’s statement said.

Investment analysts had mixed emotions on Dell’s results and direction.

“Our thesis on Dell remains unchanged: management is taking the appropriate steps by positioning the company as the next player in our ‘three-legged stool’ analogy of enterprise infrastructure but at $60-plus billion in annual revenue, this transition will take some time,” said a research note from Gleacher & Company.

“We believe calendar 2012 will be a ‘year of transition’ for Dell as the company will likely experience declining year over year earnings,” the note added.

Stuart J. Johnston is a contributing editor at InternetNews.com, the news service of Internet.com, the network for technology professionals. Follow him on Twitter @stuartj1000.