Dell 2008 Annual Report Download - page 33

Table of Contents
Services — In Fiscal 2008, revenue from services (which includes the sale and servicing of our extended product warranties) increased 5%
year-over-year compared to a 20% increase in Fiscal 2007. EMEA Commercial drove services revenue growth with a 32% increase in Fiscal 2008 as
compared to Fiscal 2007, and Americas Commercial contributed with 9% revenue growth. This growth was offset by revenue declines in Global
Consumer and APJ Commercial of 25% and 13%, respectively. Strong Fiscal 2008 services sales increased our deferred service revenue balance by
approximately $1.0 billion in Fiscal 2008, a 25% increase to approximately $5.3 billion. During Fiscal 2008, we acquired a number of service
technologies and capabilities through acquisitions of certain companies. These capabilities are being used to build-out our mix of service offerings.
We are continuing to make progress in services including ProSupport, remote infrastructure management, and Software as a Service (SaaS), which
are aimed at simplifying IT for our customers.
Storage — In Fiscal 2008, storage revenue increased 8% as compared to a 21% increase in Fiscal 2007. The revenue growth was led by EMEA
Commercial, which experienced strong growth of 18%; additionally, APJ Commercial and Americas Commercial increased 10% and 5%,
respectively. In Fiscal 2008, we expanded both our PowerVault and Dell ï EMC solutions that drove both additional increases in performance and
customer value. During the fourth quarter of Fiscal 2008, we completed the acquisition of EqualLogic, Inc., an industry leader in iSCSI SANs. With
this acquisition, we now provide much broader product offerings for small and medium business consumers.
Gross Margin
The following table presents information regarding our gross margin during each of the past three fiscal years:
Fiscal Year Ended
January 30, 2009 February 1, 2008 February 2, 2007
% of % % of % % of
Dollars Revenue Change Dollars Revenue Change Dollars Revenue
(in millions, except percentages)
Net revenue $ 61,101 100.0% (0% ) $ 61,133 100.0% 6% $ 57,420 100.0%
Gross margin $ 10,957 17.9% (6% ) $ 11,671 19.1% 23% $ 9,516 16.6%
Fiscal 2009 compared to Fiscal 2008
During Fiscal 2009, our gross margin decreased in absolute dollars by $714 million compared to the prior year with a corresponding decrease in
gross margin percentage to 17.9% from 19.1%. As a result of competitive pricing pressures and further expansion into retail through an increased
number of worldwide retail locations, there was a decrease in our average selling prices, which contributed to a decline in gross margin. The
year-over-year gross margin percentage decline can be further attributed to the fact that Fiscal 2008 witnessed unusually high component costs
declines, whereas Fiscal 2009 component cost declines returned to more typical levels. During Fiscal 2009 we made continued progress against our
ongoing cost improvement initiatives, which resulted in a number of new cost optimized product launches during the second half of 2009.
We continue to actively review all aspects of our facilities, logistics, supply chain, and manufacturing footprints. This review is focused on
identifying efficiencies and cost reduction opportunities while maintaining a strong customer experience. Examples of this include the closure of our
desktop manufacturing facility in Austin, Texas, the sale of our call center in El Salvador, and the recent announcement of our migration and closure
of manufacturing operations from our Limerick, Ireland facility to our Polish facility and third party manufacturers. The cost of these actions and
other severance and business realignment reductions was $282 million in Fiscal 2009, of which approximately $146 million affected gross margin.
We expect to continue to reduce headcount, and we may realign or close additional facilities depending on a number of factors, including end-user
demand, capabilities, and our migration to a more variable cost manufacturing model. These actions will result in additional business realignment
costs in the future, although no plans were finalized at January 30, 2009.
We continue to evaluate and optimize our global manufacturing and distribution network, including our relationships with original design
manufacturers, to better meet customer needs and reduce product cycle times. Our goal is to introduce the latest relevant technology and to deliver
the best value to our customers worldwide. As we continue to evolve our inventory and manufacturing business model to capitalize on component
cost declines, we continuously negotiate with our suppliers in a variety of areas including availability of supply, quality, and cost. These real-time
continuous supplier negotiations support our business model, which is able to respond quickly to changing market conditions due to our direct
customer model and real-time manufacturing. Because of the fluid nature of these ongoing negotiations, the timing and amount of supplier discounts
and rebates vary from time to time. These discounts and rebates are allocated to the segments based on a variety of factors including strategic
initiatives to drive certain programs.
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