Slump in PC Sales Halves Profit at Dell Inc.

on May 17, 2013

Dell Inc. (NASDAQ:DELL), the world’s third-largest PC manufacturer, released on Thursday, May 16, its financial report for the first quarter of fiscal year 2014 ended on May 3. The report showed that the company’s net income had halved due to the biggest decline in PC shipments ever that was recorded in the first three months of 2013.

The Dell share price closed at $13.43 in New York on Thursday, down 0.15 percent.
Dell took a strong blow in terms of profit in its fiscal first quarter, with net income, excluding extraordinary items, down 51 percent at $372 million, or 21 cents a share, from $761 million, or 43 cents a share, in the corresponding period a year earlier. Wall Street had expected 34 cents per share. The decline was much bigger in terms of GAAP (generally accepted accounting principles) net income, which was $130 million, down 79 percent year-on-year.

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At $14.1 billion, first-quarter sales topped analysts’ expectations of $13.5 billion but trailed behind the $14.4 billion of the year-ago quarter.
“We made progress in building our enterprise solutions capabilities in the first quarter and are confident in our strategy to be the leading provider of end-to-end scalable solutions,” Brian Gladden, Chief Financial Officer, said in a statement on Thursday. “In addition, 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. We’ll also continue to make important investments to support our strategy and drive long-term profitability.”

**Shrinking PC market**
The decline in the global PC market has adversely affected Dell’s performance. PC shipments fell 14 percent in the first quarter of 2013, the PC market’s biggest slump ever, as users shifted to tablets and smartphones, according to researcher IDC. In this hostile market environment Dell’s PC-related revenue fell nine percent year on year to $8.9 billion in the fiscal first quarter. Operating income declined 65 percent to $224 million.

The poor performance in the PC segment has offset some positive results in other divisions. Dell’s Enterprise Solutions division, which sells networking gear, computer servers and storage devices, generated $3.1 billion in revenue in the fiscal first quarter, a 10-percent increase on the same period a year earlier. Operating profit from the unit rose 71 percent to $136 million.

**Takeover battle**
Increasing Dell’s market share in servers is part of founder and CEO Michael Dell’s turnaround plan for the company. Whether Dell will be able to successfully implement it will very much depend on the outcome of the takeover battle between him and billionaire investor Carl Icahn.
!m[Narrowed Profitability Likely to Bolsters Michael Dell’s Buyout Bid](/uploads/story/2334/thumbs/pic1_inline.png)
Dell, in partnership with private equity group Silver Lake Management LLC, has launched a $24.4bn buyout bid, designed to take the company private and allow it to focus on a long term strategy for reviving its business. The bid has been challenged by Icahn and partner Southeastern Asset Management Inc. Icahn’s proposal of $12 a share in cash or stock is lower than that of Michael Dell ($13.65 a share) but is complemented by a possibility for investors to retain stakes in the company.
The profit plunge in the fiscal first quarter is likely to give Michael Dell the upper hand in the battle, as it will make his offer more appealing in the eyes of investors.
“The Icahn solution gets less attractive, and the bird in the hand looks better than the one in the bush,” Chris Whitmore, an analyst at Deutsche Bank AG in San Francisco, has opined.
**The Dell share price was $13.43 as of 10.05 GMT, 17.05.2013**


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