Dell 2003 Annual Report Download - page 22

Table of Contents
growth in excess of 25% across all product groups, in a market that, aided by currency, grew at a more robust rate of 14% (excluding Dell). Net revenue
during fiscal 2004 increased by 23%, compared to 8% in the prior year, which included combined year-over-year net revenue growth of 24% in the focus
countries of United Kingdom, France, and Germany.
Asia Pacific-Japan — Dell's strongest segment revenue growth rate during fiscal 2004 was in Asia Pacific-Japan at 26%, and was led by strong growth and
expansion in China. During calendar 2003, Dell generated market share gains in Asia Pacific-Japan of approximately 1.5 share points to 7.4% market share
and the No. 3 share position. During fiscal 2004, Dell's net unit growth was 38% in a market that increased only 8% (excluding Dell), which produced
combined net revenue growth of 26% in the focus countries of Japan and China.
For additional information regarding Dell's segments, see Note 8 of Notes to Consolidated Financial Statements included in "Item 8 — Financial Statements
and Supplementary Data."
Gross Margin
Gross margin as a percentage of net revenue continued to improve in fiscal 2004 to 18.2%, compared to 17.9% in fiscal 2003 and 17.7% in fiscal 2002. The
year-over-year improvement for fiscal 2004 and 2003 was primarily driven by Dell's continued cost savings initiatives. As part of management's focus on
improving margins, Dell remains committed to reducing costs through four primary cost reduction initiatives: manufacturing costs, warranty costs, structural
or design costs, and overhead or operating expenses. These cost savings initiatives also include providing certain customer technical support and back-office
functions from cost effective locations as well as driving more efficient processes and tools globally. Dell's general practice is to aggressively pass on declines
in costs to its customers in order to add customer value while increasing market share. Dell currently expects the component cost and competitive pricing
environment will continue to be challenging. However, management believes that the strength of Dell's direct-to-customer business model, as well as its
strong liquidity position, makes Dell better positioned than its competitors to continue profitable market share growth in any business climate.
Operating Expenses
The following table presents information regarding Dell's operating expenses during each of the past three fiscal years:
Fiscal Year Ended
January 30, January 31, February 1,
2004 2003 2002
(dollars in millions)
Operating Expenses:
Selling, general and administrative $ 3,544 $ 3,050 $ 2,784
Research, development and engineering 464 455 452
Special charges — — 482
Total operating expenses $ 4,008 $ 3,505 $ 3,718
Operating Expenses as a percentage of net revenue:
Selling, general and administrative 8.6% 8.6% 8.9%
Research, development and engineering 1.1 1.3 1.5
Special charges — — 1.5
Total operating expenses 9.7% 9.9% 11.9%
During fiscal 2004, Dell continued to execute on maximizing operating income dollars by producing record low operating expenses as a percentage of net
revenue of 9.7%. The decrease was primarily a result of previously referred to cost reduction initiatives and Dell's continued focus and execution on cost
control.
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