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Dell Profit Drops 79% On Sluggish PC Demand


Struggling PC maker Dell Inc. (DELL), which has agreed to be taken private in a $24.4 billion deal, said Thursday after the markets closed that its first quarter profit dropped 79% from last year, as revenue declined and margins deteriorated amid sluggish demand for personal computers.

The company's quarterly earnings per share, excluding items, also came in way below analysts' expectations, but its quarterly revenue beat analysts' forecast.

Earlier this week, Dell preponed its earnings release by three business days without giving any reasons, but that was on a day when reports surfaced that the company's first quarter earnings would miss Wall Street expectations.

Dell shares are currently losing 0.52% in after hours trading after closing the day's regular trading session at $13.43, down 2 cents. The shares trade in a 52-week range of $8.69 to $15.31.

The company's gross margin for the first quarter narrowed to 19.5% from 21.3% a year earlier, while operating margin shrank to 1.6% from 5.7% last year. On an adjusted basis, gross margin for the quarter narrowed to 20.6% from 22.0% a year earlier, while operating margin shrank to 4.2% from 7.0% last year.

First quarter revenue for the company's End User Computing group dropped 9% year-over-year to $8.9 billion. Desktops and thin client revenue for the first quarter fell 2% to $3.3 billion, while its mobility revenue, which includes laptop PCs, dropped 16% to $3.6 billion.

Last month, industry research firm International Data Corp. (IDC) said global PC shipments in the first quarter of 2013 fell 13.9% from last year to 76.3 million units in the first three months of 2013, the steepest year-over-year decline since the firm began tracking the PC market's quarterly performance in 1994.

Another market research first market research firm Gartner, Inc. (IT) also said worldwide PC shipments in the first quarter fell 11.2% from a year earlier to 79.2 million units, the lowest levels since the second quarter of 2009.

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 for the quarter jumped to $295 million from $38 million a year ago, while server, peripherals and networking revenue for the quarter rose 14% to $2.7 billion. Storage revenue fell 10% from a year earlier.

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

The company's total services revenue for the first quarter grew 2% year-over-year to $2.1 billion.

For the first quarter ended May 3, 2013, Dell reported net income of $130 million or $0.07 per share, compared to $635 million or $0.36 per share for the year-ago quarter.

Excluding items, adjusted net income for the first quarter fell to $372 million or $0.21 per share from $761 million or $0.43 per share in the prior year quarter.

On average, 22 analysts polled by Thomson Reuters expected the company to earn $0.35 per share for the first quarter. Analysts' estimates typically exclude special items.

This marks the 6th consecutive quarter that Dell has reported a year-over-year profit decline.

Revenue for the first quarter fell 2% $14.07 billion from $14.42 billion in the same quarter last year. Twenty analysts had a consensus revenue estimate of $13.52 billion for the first quarter.

In February, 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. The merger agreement provided for a 45-day "go-shop" period.

However, two of Dell's largest outside shareholders Southeastern Asset Management Inc. and billionaire investor Carl Icahn have come out with an alternative offer, and have threatened to launch a proxy fight if Dell shareholders are not provided with the opportunity to vote for their proposal side-by-side with the 'going private deal' in a single meeting.

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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