Dell's profit dives as billionaire battle rages on

SAN FRANCISCO Thu May 16, 2013 6:06pm EDT

A man wipes the logo of the Dell IT firm at the CeBIT exhibition centre in Hannover February 28, 2010. REUTERS/Thomas Peter

A man wipes the logo of the Dell IT firm at the CeBIT exhibition centre in Hannover February 28, 2010.

Credit: Reuters/Thomas Peter

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SAN FRANCISCO (Reuters) - Dell Inc, the subject of a takeover battle between activist investor Carl Icahn and the company's billionaire founder, reported a 79 percent slide in profit as personal computer sales continued to shrink.

The disappointing results lend weight to Michael Dell's effort. The man who started Dell from a college dorm room wants to take the world's No.3 PC maker private for $24.4 billion, arguing that its transformation into a provider of enterprise computing services, from mainly a computer maker in a shrinking market, is best done away from public scrutiny.

Reflecting that shift in focus, Dell said on Thursday that revenue from enterprise solutions, services and software jumped 12 percent to $5.5 billion, while overall revenue slipped 2 percent. Its "end-user computing division," linked to PC sales, slid 9 percent.

To augment its enterprise business and go head-to-head with more established players like International Business Machines Corp and Hewlett-Packard Co, Dell is investing heavily on research and sales to retain customers.

Icahn and major stakeholder Southeastern Asset Management, however, dismiss Michael Dell's go-private deal as too cheap for a company trying to become a major provider of enterprise computing. They are proposing new leadership and additional cash or stock for shareholders.

"Hardware margins were pretty abysmal, which should generally support (Michael) Dell's bid," said Morningstar analyst Carr Lanphier. "But Michael Dell's strategy is also to be aggressive in pricing, to win key contracts."

"It doesn't seal the case one way or the other."


Icahn's and Michael Dell's battle over what direction to take the company underscores the uncertainty in the PC industry, which enjoyed more than a decade of roaring growth until the advent of smartphones and tablets ended that era.

Now, the company that had been upheld as a model of innovation as recently as the early 2000s is steadily ceding ground to lower-cost Asian rivals and mobile hardware makers like Apple Inc.

"We made progress in building our enterprise solutions capabilities in the first quarter," Chief Financial Officer Brian Gladden said. "We have taken actions to improve our competitive position in key areas of the business, especially in end-user computing, and it has affected profitability."

Margins on a GAAP basis slid to 19.5 percent from 21.3 percent a year earlier, as total operating expenses climbed 12 percent.

Net income fell to $130 million from $635 million a year earlier. Excluding certain items, income was down 51 percent to $372 million, or 21 cents a share, from $761 million, or 43 cents a share, a year earlier.

That lagged by far the 35 cents Wall Street had expected.

Revenue in its fiscal first quarter ended May 3 fell to $14.1 billion, higher than the average analyst estimate of $13.5 billion according to Thomson Reuters I/B/E/S.

The company said it could not provide a financial outlook because it was in the midst of Michael Dell's go-private deal.

Shares in Dell slid 3 cents to $13.40 in after-hours trade, after closing at $13.43 on Nasdaq.

(Reporting by Poornima Gupta; Editing by Richard Chang)

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Comments (4)
Boulderboy wrote:
After having spent a week dealing with their new “customer service” department in India, I can understand why their personal computing department is making like the titanic. It took a week and finally had to yell to get a simple email address. I know I’ll never buy another computer from them since they outsourced…..not to mention the fact that their call centre was trying to demand sensitive banking and personal information that wasn’t required…Including photos of ID, credit cards, cheques and bank statements. After threatening to report them the information was suddenly no longer required and everything went through without a hitch.

May 16, 2013 5:07pm EDT  --  Report as abuse
Jim_Dandy wrote:
I hope Dell wins, Icahn will destroy it piece by piece like everything else he buys.

May 16, 2013 6:05pm EDT  --  Report as abuse
upshotphx wrote:
Corporate raiders like Carl Icahn are THE problem. I work for a company that was involved in one of his corporate raids a few years back. The company got cut-up like a thanksgiving turkey and sold to different buyers. As a result of all ICAHN’s bad PR, we lost 80% of our clients. Entire facilities were shutdown within a year and lots and lots of longtime employees making good middle class wages were fired. Our company still hasn’t fully recovered and probably never will. all for what?? Carl Icahn and some of his already rich cronies to make more money off the backs of people who goto work for a living and support families. Scum, pure scum.

May 16, 2013 6:32pm EDT  --  Report as abuse
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