Dell 2003 Annual Report Download - page 19

Table of Contents
ITEM 7 — MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Dell — through its direct business model — designs, develops, manufactures, markets, sells, and supports a wide range of computer systems and services that
are customized to customer requirements. These include enterprise systems (servers, storage and networking products, and workstations), client systems
(notebooks and desktops), software and peripherals, and service and support programs. Dell markets and sells its products and services directly to its
customers, which include large corporate, government, healthcare and education accounts, as well as small-to-medium businesses and individual consumers.
Dell conducts operations worldwide and is managed in three geographic segments: the Americas, Europe, and Asia Pacific-Japan regions. Within the
Americas, Dell is further segmented into Business and U.S. Consumer.
Dell's business strategy combines its direct customer model with a highly efficient manufacturing and supply chain management organization and an emphasis
on standards-based technologies. Dell's objective is to maximize stockholder value by executing a strategy based upon the direct model that focuses on a
balance of three priorities: liquidity, profitability, and growth. This strategy enables Dell to provide customers with superior value; high-quality, relevant
technology; customized systems; superior service and support; and products and services that are easy to buy and use. Management believes that the Dell
model provides the company with advantages in all environments and across all product segments and regions. In addition, management believes that
opportunity exists for Dell's continued profitable growth by increasing its presence in existing markets, entering new markets, and pursuing additional product
and service opportunities.
The following table summarizes Dell's consolidated results of operations for each of the past three fiscal years:
Fiscal Year Ended
January 30, Percentage January 31, Percentage February 1,
2004 Change 2003 Change 2002
(dollars in millions)
Net revenue $ 41,444 17% $ 35,404 14% $ 31,168
Gross margin $ 7,552 19% $ 6,349 15% $ 5,507
% of net revenue 18.2% 17.9% 17.7%
Operating expenses $ 4,008 14% $ 3,505 (6)% $ 3,718
% of net revenue 9.7% 9.9% 11.9%
Operating income $ 3,544 25% $ 2,844 59% $ 1,789
% of net revenue 8.6% 8.0% 5.8%
Net income $ 2,645 25% $ 2,122 70% $ 1,246
% of net revenue 6.4% 6.0% 4.0%
During fiscal 2004, Dell reinforced its position as the world's No. 1 supplier of personal computer systems as its performance continued to outpace the
industry. During the year, Dell maintained its focus on standards-based technologies and extending its capabilities further into the enterprise by utilizing its
direct-to-customer model to drive down costs while achieving profitable market share growth. Year-over-year net unit shipments increased 26% during fiscal
2004, led by strong growth in Asia Pacific-Japan, U.S. Consumer, and Europe. Dell increased its worldwide market share by almost 2 points during the
calendar year and captured the number one market share position at 16.7%. Net revenue increased 17% to $41.4 billion during fiscal 2004 with operating
expenses reaching a record low 9.7% of net revenue. Dell's focus on maximizing operating income dollars resulted in record operating profits and net income
of $3.5 billion and $2.6 billion, respectively. Dell also delivered strong liquidity with operating cash flow of $3.7 billion and ended the year with record cash
and investments of $11.9 billion.
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