Dell Inc, the PC maker embroiled in a takeover battle between its founding CEO and activist investor Carl Icahn, on Thursday reported a 72 percent slide in quarterly earnings as PC sales extended their downward spiral.<\/p>\n
Dell, which once led the world in computer sales and was held up as a model of production-chain innovation, is increasingly resorting to price cuts to soothe customers nervous about its future and to spearhead a late foray into the enterprise computing market.<\/p>\n
“It was predictably bad. It’s not a big surprise that margins compressed to the degree that they did, when they’re prioritizing sales volume over profitability,” Morningstar analyst Carr Lanphier said. “You have to offset that uncertainty somehow.”<\/p>\n
Dell is the subject of a bitter contest over its future, with founder and CEO Michael Dell proposing a $25 billion buyout to take the PC maker private, and Icahn leading shareholder opposition on the basis that the offer is too cheap.<\/p>\n
The dismal results could shore up the CEO’s argument that his $13.75-a-share offer, plus a 13-cent dividend, is a fair price for the world’s No.3 PC maker, which needs to undergo a serious overhaul out of the public investor spotlight.<\/p>\n
Analysts say Dell has had to aggressively cut prices to win over enterprise customers nervous about long-term contracts with a company in the middle of a complicated restructuring, and must compete in enterprise services with better-established rivals like Hewlett-Packard Co and IBM.<\/p>\n
Some have speculated that Dell, which has spent some $13 billion in acquisitions since 2008 to expand into storage, software and networking, may reverse direction and unload assets as it continues to restructure the organization.<\/p>\n
“They can’t compete on a level playing field when you have a wrestling match over the future of the company,” Lanphier said.<\/p>\n
Shares of the company dropped 2 cents to $13.68 in after-hours trade, following a brief rise.<\/p>\n
The company in recent years has become one of the more prominent victims of PC market erosion from mobile devices, such as Apple Inc’s iPad. Sales from Dell’s end-user computing division, which incorporates computers, slid 5 percent to $9.1 billion.<\/p>\n
Its fortunes remain closely tied to PC sales, which still yield about half of revenue. Global sales of personal computers are expected to fall 7 percent this year and 4.5 percent next year, according to analysts at CLSA.<\/p>\n
For its fiscal second quarter, Dell reported sales of $14.5 billion, flat from a year earlier and surpassing the $14.2 billion analysts on average had expected.<\/p>\n
But net income fell sharply to $204 million or 12 cents a share, compared to $732 million or 42 cents a share in the year-earlier period. Excluding items, it earned 25 cents a share, barely edging past a 24-cent average forecast, according to Thomson Reuters I\/B\/E\/S.<\/p>\n
Gross margins slid a percentage point from the previous quarter to 19.6 percent.<\/p>\n
More positively for Dell, sales from the enterprise solutions, services and software business climbed 9 percent to $5.8 billion, reflecting an increased focus on investing in providing services to corporations and government agencies.<\/p>\n
Michael Dell wants to transform the company he founded in a company dorm room in 1984 into a complete provider of computing services like HP or IBM. And he wants to do it away from public market scrutiny, hence the take-private offer.<\/p>\n
But Dell’s rivals have had several years’ headstart, and it remains to be seen whether the new strategy of offering customers a hybrid of hardware, software and services will work, at a time more customers are moving into cloud-based systems.<\/p>\n
Dell CFO Brian Gladden reassured investors and customers that the company remains focused on effecting that transformation and serving its clients – a common message repeatedly stressed by senior executives as the buyout distraction continues.<\/p>\n
“While the environment continues to be challenging, we remain focused and dedicated to this objective,” Gladden said in a public letter published on Thursday.<\/p>\n
On Friday, the Icahn and Michael Dell contest will spill over into the courtroom. A Delaware court will hear Icahn’s request to expedite a hearing on his lawsuit, part of the billionaire activist’s attempt to derail the buyout.<\/p>\n
Icahn sweetens Dell bid<\/strong><\/a><\/p>\n Icahn promises $16 billion buy-back of Dell stock<\/a><\/strong><\/p>\n Icahn short on cash for Dell proposal: committee<\/strong><\/a><\/p>\n