Dell 2009 Annual Report Download - page 33

Table of Contents
economic downturn and competitive pressures. We have seen improved product demand in Large Enterprise in the second half of
Fiscal 2010 and, absent further macroeconomic deterioration, we expect this improving demand to continue in Fiscal 2011.
During Fiscal 2010, operating income percentage decreased 70 basis points year-over-year to 5.7%. Operating income deteriorated as
revenue decreased year-over-year due to lower demand. Additionally, operating expenses as a percentage of revenue increased
year-over-year even though operating expense dollars decreased 17%. We believe that Large Enterprise is well positioned for better
operating leverage going forward as demand strengthens, and as we continue to shift our enterprise storage and server products to
higher margin offerings.
• Public — Public experienced a year-over-year decline in both revenue and unit shipments during Fiscal 2010. The decline in unit
shipments of 10% can be attributed to continued soft demand in the current global economy. During Fiscal 2010, Public's average
selling prices increased 4% due to a higher mix of services, and software related revenues, partially offset by competitive pricing
pressures on our desktop PC and mobility offerings. During Fiscal 2010, Public's revenue declined across all product categories
except for services, and software and peripherals revenue, which grew year-over-year by 28% and 5%, respectively. The growth in
services revenue was largely due to the acquisition of Perot Systems, which contributed $418 million to Public's Fiscal 2010 services
revenue. Without the contribution by Perot Systems, Public's services revenue would have remained relatively flat with the prior
year. Product revenue decline was led by lower revenue from sales of desktop PCs, which decreased year-over-year by 20%. We
have seen improved demand in Public in the second half of Fiscal 2010 and, absent further macroeconomic deterioration, we expect
this trend to continue in Fiscal 2011.
During Fiscal 2010, operating income percentage increased 120 basis points year-over-year to 9.4%. Operating income was
positively impacted by a year-over-year improvement in gross margin percentage during Fiscal 2010 as we continued to optimize our
pricing and cost structure and sell higher value solutions to our customers. The addition of Perot Systems contributed 3% to the
growth in operating income. Also favorably impacting operating income was a 5% year-over-year decrease in operating expenses
during Fiscal 2010, driven by cost savings related to headcount reductions and improved spending controls on SG&A and RD&E
expenditures.
• Small and Medium Business — During Fiscal 2010, SMB experienced a 19% and 14% year-over-year decline in revenue and unit
shipments, respectively. Average selling prices declined 6%. SMB experienced double digit revenue declines across all product lines
except storage and services during Fiscal 2010, led by a 28% and 18% decline in desktop PC and mobility revenue, respectively. We
limited our participation in certain lower priced but higher demand bands in an effort to protect profitability. This is not a long term
strategy and we will participate in those lower priced bands as we bring new product offerings to market. Storage and services had
9% and 8% year-over-year decreases, respectively. Consistent with our other Commercial segments' performance, the contraction of
the global economy during the first half of Fiscal 2010 and competitive pressures were significant contributors to SMB's
year-over-year revenue, unit shipment, and average selling price declines. We did see improving unit demand trends as we
progressed through the latter half of Fiscal 2010. From a country perspective, SMB had year-over-year revenue declines in most
countries except the BRIC countries, in which the combined revenue grew 24%.
Operating income percentage increased 10 basis points year-over-year to 8.6% during Fiscal 2010. Operating income dollars
decreased 18% as revenue and unit shipments decreased significantly for both periods. Also impacting operating income was a slight
increase in gross margin percentage during Fiscal 2010. We were also able to reduce operating expenses during Fiscal 2010, mainly
due to tighter spending controls on SG&A and RD&E expenses.
• Consumer — During Fiscal 2010, Consumer's revenue declined 6% year-over-year, on unit growth of 19%. Even though unit
shipments grew, our Consumer revenue decreased mainly due to the effects of our growth in retail, which tends to have lower
average selling prices, combined with a shift in product mix and competitive pricing pressures. As a result, our average selling prices
declined 21% year-over-year during Fiscal 2010. From a product perspective, Consumer's desktop PC revenue declined 24% during
Fiscal 2010 as compared to Fiscal 2009 on a unit shipment decline of 10%. Mobility revenue increased 4% during Fiscal 2010.
During the same period, units shipped for mobility increased year-over-year by 32%; however, the positive impact of increased
shipments was offset by an average selling price per unit decline of 21%. The continued shift in consumer
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