Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Ahead of Buyout Vote, Dell Q2 Profits Fall 72 Percent

DellatCESDell, the struggling computing company seeking to go private in a $26 billion leveraged buyout, reported what might turn out to be its final set of earnings results as a public company. If nothing else, it’s pretty easy to see why it has sought to go private.

While earnings per share were 25 cents, a penny better than what analysts had expected, and sales were at $14.5 billion, ahead of expectations, net profits fell 72 percent from the same period a year ago, and by half on a per-share basis.

Sales of personal computers amounted to $9.5 billion, representing a drop of five percent, while operating profits in that unit fell 71 percent. Sales in the enterprise solutions group rose by eight percent to $3.3 billion. Services revenue rose two percent to $2.1 billion, while the unit’s operating income rose one percent. Software revenue was $310 million and reported an operating loss. Overall, Dell’s gross margin was 18.5 percent, down from 21.7 percent in the year-ago period.

The company declined to provide outlook for the current quarter.

It was the latest indicator of the state of business at the computing company started in 1984 by Michael Dell in a college dormitory at the University of Texas at Austin. In February of this year, Dell, the company’s chairman and CEO, teamed up with the private equity firm Silver Lake to take the company private. The plan has been to effect a turnaround of the company’s fortunes without the pressure of meeting shareholder expectations for growth while investing heavily in a shift away from the declining personal computer business and toward more profitable enterprise technology, software and services.

Their efforts have been frustrated by Carl Icahn, the billionaire activist investor who has sought to win shareholders over with a recapitalization proposal. Icahn, the company’s second-largest shareholder, won sufficient backing of several other institutional shareholders to scotch the buyout proposal, which requires a 43 percent vote a shareholders.

Earlier this month, Michael Dell reached a deal with a special committee of the company’s board to increase the initial buyout bid to $13.75 a share from $13.65 and to pay a special 13-cent dividend.


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