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Dell Profit Drops 72% Amid PC Slump

Dell Profit Drops 72% Amid PC Slump
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8/15/2013 5:41 PM ET

Struggling PC maker Dell Inc. (DELL: Quote) said Thursday after the markets closed that its second quarter profit dropped 72% from last year, as revenue remained essentially flat and margins deteriorated amid sluggish demand for personal computers.

However, the company's quarterly earnings per share, excluding items, came in above analysts' expectations as did its quarterly revenue.

Dell shares are currently losing 0.04% in after hours trading after closing the day's regular trading session at $13.70, down 2 cents. The shares trade in a 52-week range of $8.69 to $14.64.

The company's gross margin for the second quarter narrowed to 18.5% from 21.6% a year earlier, while operating margin shrank to 1.9% from 6.2% last year. On an adjusted basis, gross margin for the quarter narrowed to 19.6% from 22.6% a year earlier, while operating margin shrank to 4.1% from 7.8% last year.

Second quarter revenue for the company's End User Computing group dropped 5% year-over-year to $9.1 billion. Desktops and thin client revenue for the quarter fell 1% to $3.6 billion, while its mobility revenue, which includes laptop PCs, dropped 10% to $3.6 billion.

Last month, industry research firm International Data Corp. said global PC shipments in the second quarter of 2013 fell 11.4% from last year to 75.6 million units.

Another market research first market research firm Gartner, Inc. (IT) also said worldwide PC shipments in the second quarter fell 10.9% from a year earlier to 76.0 million units. Gartner said "This marks the fifth consecutive quarter of declining shipments, which is the longest duration of decline in the PC market's history."

Dell is now the world's third largest PC maker behind China's Lenovo and Hewlett-Packard Co. (HPQ).

Dell's software group revenue for the quarter jumped 228% to $310 million, while server, peripherals and networking revenue for the quarter rose 10% to $2.9 billion. Storage revenue fell 7% 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 second quarter ended August 2, 2013, Dell reported net income of $204 million or $0.12 per share, compared to $732 million or $0.42 per share for the year-ago quarter.

Excluding items, adjusted net income for the second quarter fell to $433 million or $0.25 per share from $875 million or $0.50 per share in the prior year quarter.

On average, 19 analysts polled by Thomson Reuters expected the company to earn $0.24 per share for the second quarter. Analysts' estimates typically exclude special items.

This marks the 7th consecutive quarter that Dell has reported a year-over-year profit decline.

Revenue for the second quarter was $14.51 billion, up slightly from $14.48 billion in the same quarter last year. Seventeen analysts had a consensus revenue estimate of $14.18 billion for the second quarter.

Dell advanced the publication of its earnings report by four working days. It came as the company's founder, Chairman and Chief Executive Officer Michael Dell and activist investor Carl Icahn are embroiled in a bitter and protracted battle over the company's future.

Michael Dell wants to take the PC maker private in partnership with private equity firm Silver Lake, while Icahn is opposing the move in order to get a better deal for Dell shareholders.

Earlier this month, Dell's special committee agreed to a revised deal for the company to be taken private by Michael Dell and private equity firm Silver Lake Partners that includes an improved offer and additional special dividend in return for amending voting rules to aid the smooth approval of the deal.

The revised agreement will increase aggregate value to unaffiliated shareholders by about $470 million, including a third-quarter dividend, and now take the total deal value to about $24.9 billion.

Round Rock, Texas-based Dell had initially agreed in early February to be taken private for $13.65 per share by Michael Dell in partnership with Silver Lake in a $24.4 billion deal.

In late-July, Michael Dell and Silver Lake raised their offer for Dell by another ten cents to $13.75 per share in cash, but subject to a change in voting rules in order to aid the buyout process. That offer raised the original $24.4 billion bid for Dell by $150 million.

The company's shareholders are scheduled to vote on Michael Dell's bid on September 12.

A Delaware court is expected to hear opposition to the Michael Dell offer from activist investor Carl Icahn on Friday.

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.

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by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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