Dell 1st-Quarter Profit Down 79% as Revenue, Margins Slip

   By Nathalie Tadena 
 

Dell Inc.'s (DELL) fiscal first-quarter earnings dropped 79%, missing Wall Street expectations, as the computer maker reported weaker revenue in its computing segment and narrower margins.

The quarter marks Dell's sixth straight period of year-over-year profit declines amid an industry-wide slump in PC sales as tablets and smartphones become more popular devices.

The report, which was pushed up three business days, comes as founder and Chief Executive Michael Dell is seeking to take the company private in a $24.4 billion deal. The company has said it can more easily make the necessary changes to turn itself around without the scrutiny and limitations of being a public company. However, the $13.65-a-share deal from Silver Lake Partners and Mr. Dell has raised the ire of some shareholders, including Dell's largest outside shareholder Southeastern Asset Management Inc. and activist investor Carl Icahn. Last week, they proposed an alternative offer.

Dell, meanwhile, said earlier this week that it would accelerate the earnings report without disclosing a reason.

In recent years, Dell has looked to move away from its reliance on PCs, building out a portfolio of products and services that it can sell to businesses. Those include security software, storage systems, networking gear, which usually have higher profit margins than PCs.

Revenue from the company's end user computing segment fell 9.3%. Within that segment, desktop and thin-client revenue declined 1.9%, while mobility revenue was down 16%. Enterprise solutions revenue was up 9.8%, while services revenue improved 1.7%. The company's software unit had revenue of $295 million, resulting in an operating loss. The company recently realigned its operating segments.

Overall, Dell reported a profit of $130 million, or seven cents a share, for the quarter ended May 3, down from $635 million, or 36 cents a share, a year earlier. Excluding amortization, severance and acquisition-related charges and other items, per-share earnings fell to 21 cents from 43 cents. Revenue slipped 2.4% to $14.07 billion.

The results were in line with those estimated on Tuesday by The Wall Street Journal, which cited a person briefed on the results.

Meanwhile, analysts polled by Thomson Reuters most recently projected a per-share profit of 35 cents and revenue of $13.5 billion.

Gross margin narrowed to 19.5% from 21.3%. Operating expenses were up 12%.

Shares were off by three cents to $13.40 after hours. The stock is up 32% since the start of the year.

Write to Nathalie Tadena at [e-mail]

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