Dell 2009 Annual Report Download - page 30

Table of Contents
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. We monitor our suppliers' net cost, including vendor funding programs, and work to mitigate any disruptions or
price disadvantages caused by changes in our supplier programs.
In general, gross margin and margins on individual products and services will remain under downward pressure due to a variety of
factors, including continued industry-wide global pricing pressures, increased competition, compressed product life cycles, potential
increases in the cost and availability of raw materials, and outside manufacturing services. We expect to continue to see pressure on
certain component costs, and we will continue to adjust our pricing strategy and shift towards a variable cost manufacturing model with
the goals of optimizing growth and profitability. We will continue to invest in initiatives that will align our new and existing products and
services with customers' needs, particularly for enterprise products and solutions. As we shift our focus more to enterprise products and
solutions, we believe the improved mix of higher margin sales will positively impact our gross margin over time.
Fiscal 2009 compared to Fiscal 2008
During Fiscal 2009, our gross margin decreased in absolute dollars and in gross margin percentage as a result of decreases in average
selling prices from competitive pricing pressures and further expansion into retail through an increased number of worldwide retail
locations. The year-over-year gross margin percentage decline can be further attributed to the fact that Fiscal 2008 witnessed unusually
high component cost declines, whereas Fiscal 2009 component cost declines returned to more typical levels. During Fiscal 2009, we
closed our desktop manufacturing facility in Austin, Texas, and sold our call center in El Salvador.
Operating Expenses
The following table presents information regarding our operating expenses during each of the past three fiscal years:
Fiscal Year Ended
January 29, 2010 January 30, 2009 February 1, 2008
% of % % of % % of
Dollars Revenue Change Dollars Revenue Change Dollars Revenue
(in millions, except percentages)
Operating expenses:
Selling, general, and administrative $ 6,465 12.2% (9%) $ 7,102 11.6% (6%) $ 7,538 12.4%
Research, development, and engineering 624 1.2% (6%) 663 1.1% 9% 610 1.0%
In-process research and development - 0.0% (100%) 2 0.0% (98%) 83 0.1%
Total operating expenses $ 7,089 13.4% (9%) $ 7,767 12.7% (6%) $ 8,231 13.5%
Fiscal 2010 compared to Fiscal 2009
• Selling, General, and Administrative — During Fiscal 2010, selling, general and administrative ("SG&A") expenses decreased
compared to Fiscal 2009 primarily due to decreases in compensation, advertising expenses, and improved general spending controls.
Compensation and benefits expense, excluding expenses related to headcount reductions, decreased approximately $300 million in
Fiscal 2010 compared to Fiscal 2009. With the increase in retail volumes, which typically incur less advertising costs, advertising
expenses decreased approximately $200 million year-over-year from Fiscal 2009. Due to company-wide spending control measures,
there were large decreases in most other categories of expenses, including travel, maintenance, telecom, utilities, training, and
recruiting, resulting in savings of over $340 million.
These decreases were partially offset by an increase in accounts receivable bad debt of $40 million resulting from the challenging
business environment. SG&A expenses related to headcount and infrastructure reductions through our on-going cost optimization
efforts were $237 million for Fiscal 2010 compared to $136 million for Fiscal 2009. SG&A expenses for Fiscal 2010 also included
approximately $115 million of costs related to the acquisition of Perot Systems.
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