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Dell Profit Falls 31% On Sluggish PC Demand


Dell Inc. (DELL), which recently agreed to be taken private in a $24.4 billion deal, said Tuesday after the markets closed that its fourth quarter profit fell 31% from last year, as revenue declined amid sluggish demand for personal computers.

However, the company's quarterly earnings per share, excluding items, managed to beat analysts' estimate as did its quarterly revenue.

The company did not provide an outlook for the first quarter and its current fiscal year in view of the recently announced going private transaction.

Dell shares are currently gaining 0.40% in after hours trading after closing the day's regular trading session at $13.81, down a penny. The shares trade in a 52-week range of $8.69 to $18.36.

The company's gross margin for the fourth quarter improved to 21.7% from 21.1% a year earlier, while operating margin narrowed to 4.9% from 5.8% last year. On an adjusted basis, gross margin for the quarter improved to 22.8% from 21.7% a year earlier, while operating margin shrank to 6.7% from 7.1% last year.

Region wise, the company's Amercas revenue fell 10% year-over-year in the fourth quarter, while Europe, Middle East and Africa revenue dropped 14% and Asia-Pacific and Japan revenue slipped 9%.

The company's desktop PC revenue for the fourth quarter fell 14% to $3.2 billion, while its mobility revenue, which includes laptop PCs, dropped 25% to $3.7 billion.

Last month, industry research firm International Data Corp. said global PC shipments in the fourth quarter of 2012 fell 6.4% from last year, as the popularity of latest smartphones and media tablets continued to hit PC demand. This marked the first time in more than five years that the PC market has seen a year-on-year decline during the holiday season, leading to annual decline also.

Dell is now the world's third largest PC maker. It had lost the global PC lead to Hewlett-Packard Co. (HPQ) in 2006 and lost the second position to China's Lenovo in the third quarter of 2011. According to Gartner, Lenovo overtook HP as the world's top PC vendor in the third quarter of 2012.

Dell's software and peripherals revenue for the fourth quarter fell 11% from last year, while server and networking revenue for the quarter rose 18%.

Dell is the world's third largest maker of server computers behind International Business Machines Corp. (IBM) and HP.

Services revenue for the fourth quarter declined 3% year-over-year, while storage revenue fell 13% from a year earlier.

For the fourth quarter ended February 1, 2013, Dell reported net income of $530 million or $0.30 per share, compared to $764 million or $0.43 per share for the year-ago quarter.

Excluding items, adjusted net income for the fourth quarter fell to $702 million or $0.40 per share from $913 million or $0.51 per share in the prior year quarter.

On average, 27 analysts polled by Thomson Reuters expected the company to earn $0.39 per share for the fourth quarter. Analysts' estimates typically exclude special items.

This marks the 5th consecutive quarter that Dell has reported year-over-year profit decline.

Revenue for the fourth quarter fell 11% $14.31 billion from $16.03 billion in the same quarter last year. Fourth quarter revenue grew 4% sequentially. Twenty-three analysts had a consensus revenue estimate of $14.12 billion for the fourth quarter.

Earlier this month, Dell agreed to be acquired and taken private in a $24.4 billion deal by the company's founder, Chairman and Chief Executive Officer Michael Dell in partnership with private equity firm Silver Lake. The deal is expected to close before the end of the second quarter of Dell's fiscal year 2014. Dell will continue to be based in Round Rock, Texas. The merger agreement provides for a "go-shop" period - initially for 45 days - during which Dell can actively solicit alternative proposals.

Dell was once a darling of Wall Street and the world's largest PC maker that boasted a market capitalization above $100 billion. However, the company was among the worst sufferers among the technology giants during the recession In order to drive growth, Dell resorted to acquisitions, cut thousands of jobs and closed plants to remain competitive.

Of late, Dell is struggling with lower sales for desktops and laptops as consumers switch over to tablet PCs such as the iPad from Apple Inc. (AAPL).

Going private is likely to allow Dell to focus on hardware, software and services for businesses without the scrutiny and limitations of being a public company. If the deal goes through, it would be the the biggest leveraged buyout since the financial crisis.

by RTTNews Staff Writer

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