Dell 2nd-Quarter Profit Down 72% on Flat Revenue, Higher Expenses

   By Nathalie Tadena 
 

Dell Inc.'s (DELL) fiscal second-quarter earnings declined 72% as the computer maker recorded flat revenue and an increase in operating expenses.

The quarter marks Dell's seventh period of year-over-year profit declines amid an industrywide slump in personal-computer sales as tablets and smartphones become more popular devices. However, results beat analyst expectations in the latest period.

The earnings report, which was pushed up three business days, comes as the company is locked in a heated battle between its founder and Chief Executive Michael Dell and activist investor Carl Icahn over its future.

Mr. Dell and private-equity firm Silver Lake Partners recently raised their offer to take the company private to $13.75 a share with a 13-cent-a-share special dividend, increases that together add another $350 million to what had been a $24.4 billion deal. Shareholders are set to vote Sept. 12 on Mr. Dell's offer.

The buyout has been controversial since it was first announced in February. Mr. Icahn has proposed his own plan, which would see the company use debt to repurchase a majority of shares and leave some of the company public, and is fighting shareholder voting changes and the timing of the vote.

Dell said Wednesday afternoon it was accelerating its earnings report, which previously had been scheduled for Tuesday, without disclosing a reason.

The company, founded by Mr. Dell nearly 30 years ago, has struggled to keep pace with the latest technology trends. Mr. Dell has envisioned focusing the company on serving corporate clients rather than selling consumer computers. Shareholders who have protested the deal have had many of the same goals but felt the original $13.65-a-share price undervalued the company and that the buyout unfairly cut them out of potential upside in any Dell revival.

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 4.5%. Within that segment, desktop and thin client revenue was up 1.3% while mobility revenue slipped 9.6%. Enterprise solutions revenue improved 7.7%, while services revenue increased 1.9%. The software unit's revenue soared from a year earlier to $310 million but recorded an operating loss.

Overall, Dell reported a profit of $204 million, or 12 cents a share, down from $732 million, or 42 cents a share, a year earlier. Excluding amortization, acquisition-related charges and other items, earnings fell to 25 cents from 50 cents a share. Revenue edged up 0.2% to $14.51 billion.

Analysts polled by Thomson Reuters most recently forecast earnings of 24 cents a share and revenue of $14.18 billion.

Gross margin narrowed to 18.5% from 21.6%. Operating expenses were up 8%.

Shares were up a penny at $13.72 after-hours Thursday. The stock is up 35% since the start of the year.

Write to Nathalie Tadena at [e-mail]

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