Dell Profit Plummets Amid Buyout Troubles

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Dell has posted an alarming 51 percent drop in profits as it slashes PC prices to shore up market share

Dell has – as expected – delivered a dismal set of financial results, as the company remains locked in a buyout battle with shareholders.

Dell is the world’s third-largest personal computer maker behind Lenovo and Hewlett-Packard, and it had brought forward the announcement of its financial results amid market speculation of poor results.

Price Cutting

For the first quarter 2013, Dell posted $14.1 billion (£9.3bn) in revenue, and the good news was that it beat analyst expectations of $13.5 billion (£8.9bn). However, the bad news was that the figure was down from the $14.4 billion (£9.5bn) Dell reported in the same quarter a year-ago.

Dell logoBut worst news was to follow about Dell’s profitability. Net income slipped to $372 million (£244m) or 21 cents (£0.14) per share. This was alarmingly below analyst estimates of 34 cents (£0.22) per share. It also meant that profits were down a whopping 51 percent compared to $761 million (£499m) or 43 cents (£0.28) per share reported in the year-ago quarter.

A main reason for this drop was that the company slashed PC prices to try and slow its declining market share.

“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,” Chief Financial Officer Brian Gladden said on a conference call to analysts. “We’ll also continue to make important investments to support our strategy and drive long-term profitability.”

The global laptop and desktop computer markets have been slipping for the last few years as smartphones and tablets have moved in to replace older-style machines for many users. All the major PC manufacturers are scrambling to cut prices and add functionality to the computers in order to compete.

Company Transformation

Ever since Michael Dell returned after a three-year hiatus to reclaim the CEO chair in 2007, Dell has been working to morph itself into an enterprise IT solutions and services provider. Its main strategy has been to spend billions of dollars to buy companies in hopes of building up its capabilities in such areas as storage, networking, software and the cloud.

In hopes of accelerating that difficult transformation – and to get away from the Wall Street scrutiny of the company’s finances – Dell and equity firm Silver Lake Partners in February announced a $24.4 billion (£15.8bn) bid to buy the company back from investors in a leveraged buyout. Dell believes that a move would enable the company to take stronger actions to revive its business without having to look over its shoulder at investors.

The Austin, Texas-based company is now the object of a takeover battle between groups led by Dell and activist investor Carl Icahn. Icahn and Southeastern Asset Management, Dell’s largest independent shareholder, were asked earlier this week to provide more details on a rival proposal that offered stockholders $12 (£7.88) a share in cash or extra shares.

Dell’s team attempting to take the company private includes its longtime partner Microsoft.

The stock was selling at $13.45 (£8.82) per share on 16 May.

eWEEK Senior Editor Jeff Burt contributed to this story.

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Originally published on eWeek.