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I didn't lie. This is disgusting.

On $3.547billion in fourth quarter revenue, Dell's (NASDAQ:DELL) consumer division made $9million dollars, for an operating income margin of .2%.

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As I reported right when their earnings (see conference call transcript here) crossed the wires, Dell's total company revenue for the fourth quarter of $14.9billion came in a BILLION DOLLARS higher than expectations, which prompted traders to bid the stock up 60 or 70 cents in after hours trading. But earnings per share beat by only ONE PENNY, and people promptly sold off the stock.

The company gave away gross margin to chase barely profitable sales, and the tone on the conference call - at least from the analysts - was one collective "are you kidding?" Management anticipated some questions about the ongoing disaster in the consumer business, and offered two simple reasons for their "strategic commitment" to such a weak division:

1. It provides them scale across other segments when negotiating with suppliers on price and terms
2. The division is great for Dell's cash conversion cycle, which is always a problem for the company

So what I take away from this is that as dismal as the consumer business is for Dell, it would be worse if they exited it.

Going forward, Dell's objective is to move upstream further into the storage and server market, both of which are higher margin and more of a stable recurring revenue = the market will value it higher. But more important than that is the possibility that Dell FINALLY gets a handle on its working capital. If they can consistently make cash from operations exceed net income, then these shares have much higher to run.

As ugly as this quarter was, Dell still topped earnings expectations. They see revenue for next quarter a bit lower, but with higher gross margins, meaning eps should be roughly in line with expectations. Or slightly up. Ahh the confusion.

A look at Dell's Free Cash Flow, cash per share and possible Free Cash Flow Yields is why I still maintain that the shares are a bargain, as I did last May.

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Disclosure: Long Dell

Source: Dell: Despite Consumer Segment Horror Show, It Has More Upside