Dell's profit dives as billionaire battle rages on

SAN FRANCISCO: 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."
A FUTURE
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. - Reuters