Dell Inc. ( DELL ) delivered earnings of 51 cents per share in the fourth quarter of 2012, which was in line with the Zacks Consensus Estimate. Following the earnings release, the company's share price dipped 5.05% to $17.29 in after hour trade.

Revenues

Dell reported total revenue of $16.03 billion in the reported quarter, up 2.2% from the year-ago quarter and roughly in line with the Zacks Consensus Estimate of $16.0 billion. The marginal improvement in revenue can be attributed to decent performance by Large Enterprise and Small & Medium Business, partially offset by the uncertain economic condition, lower IT spending, and lackluster contribution from the Public and consumer revenues.

Revenue by Segments

Large Enterprise posted revenues of $4.9 billion, up 4.6% year over year. The improvement in revenue was aided by broad-based growth across both the client and enterprise solutions and services.

Within this segment, the company continues to expand its vertical expertise and developed service, as well as solutions that are relevant to customers' business needs. While demand continues to remain soft in the U.S., the company continues to witness growth in both EMEA and APJ.

Public Revenue was $3.94 billion, down 0.6% year over year. The downside in revenue can be attributed to the weakness in the U.S., Public and Western Europe sectors. The company continues to witness slower spending pattern by the Federal customers during the fourth quarter.

Although the segment witnessed revenue decline, services revenue increased 7.0%, coupled with a 32.0% surge in Dell IP storage revenue, which signifies that government customers are deploying Dell solutions to help drive productivity.

Small and Medium Business revenue rose 6.1% to $3.98 billion. The segment witnessed strong growth across all geographic regions, including the U.S. Enterprise solutions and services performance, which hit an all-time high during the quarter, thereby generating growth of 18.0%. This segment also reported a 28.0% growth in services.

Consumer Business revenue declined 2.5% to $3.19 billion, as revenue and margin weakness was largely concentrated in the U.S. market with a decline of 15%. The company continued to see good progress in the high-end Consumer systems as its XPS notebook revenue soared 103% for the full year.

Operating Results

Gross margin in the reported quarter remained almost flat year over year at 21.1%. Gross margin for the quarter was negatively impacted by the global hard drive challenge. Although the company was effective in shaping demand and pricing for hard drive cost increases, it remained impacted by the available mix of drives.

Moreover, the company started reducing the inventory of previous-generation phones that primarily affected the margin of the Consumer business. The Public business growth was impacted by continued weakness in U.S. public spending.

Operating income stood at $931.0 million or 5.8% of revenues in the reported quarter, down 18.7% year over year. The company was not able to control its expenses properly, which resulted in the decline in operating income.

GAAP earnings in the quarter were 43 cents per share compared with 48 cents a share in the year-ago quarter. Excluding special items like amortization of intangibles, severance and facility consolidation cost, acquisition-related costs, as well as income tax adjustments, earnings per share in the quarter was 51 cents versus 53 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Dell's cash conversion cycle was negative 36 days versus negative 31 days in the previous quarter. Cash flow from operations declined to $1.8 billion from $851.0 million reported in the year-ago quarter. The company ended the quarter with $14.8 billion in cash and short-term investments versus $13.3 billion in the previous quarter.

Guidance

Non-GAAP earnings per share for fiscal 2013 are expected to exceed the record level of $2.13 delivered in fiscal 2012. The company expects to continue with its strong execution and anticipates cash flow from operations to exceed net income. Again for the first quarter of 2013, the company expects revenue to decline approximately 7.0% sequentially, owing to the normal seasonality adjusted for the fourteenth week.

Conclusion

Dell reported modest fourth quarter results, with earnings per share ( EPS ) declining from the year-ago quarter while revenue improving marginally on a yearly basis. Though the PC maker has provided a weak sequential guidance (due to hard disk supply disruption), we believe growth prospects for fiscal 2013 are underway.

Dell's focus shift from traditional PC business (low margin business) to high-margin cloud-computing, exposure in the Electronic Medical Record sector, entry into the smartphone business, and high cash generation ability are positives for the company. However, mediocre operating performance and lower cost control measures are concerning. This apart, stiff competition from other tech majors such as Hewlett-Packard Company ( HPQ ), Apple Inc. ( AAPL ) and Acer may pose some challenges to the company.

The company has a Zacks#2 Rank, which implies a short-term Buy rating.