Dell profit slides 72% as privatization battle drags on
Dell has been cutting prices to win business, which hurt its profit
IDG News Service - Dell reported a 72 percent drop in profit on Thursday, a month before an expected shareholder vote that could shape the future of the company.
Dell is in the midst of a battle between founder and CEO Michael Dell, who wants to take Dell private, and a group of discontented shareholders who say he must pay more money in order to do so.
Michael Dell and his investment partner increased their offer slightly last month, to about $24.7 billion, and on Sept. 12 Dell's shareholders are due to vote on whether to accept the proposal. The opponents, led by investor Carl Icahn, still want more money, and it's unclear if the privatization plan will go through.
In the meantime, Dell is fighting to improve its financial performance against the backdrop of a declining PC market, a lackluster economy and uncertainty about its future.
On Thursday it reported revenue for its second quarter, ended Aug. 2, of $14.5 billion, about level with the same quarter last year. Net income declined 72 percent to $204 million.
Sales in its PC business fell 5 percent to $9.1 billion, Dell said. But operating profits from that group declined more steeply, by 71 percent, as Dell cut prices to win business and grow its market share.
"Our efforts to improve growth have improved our share position at the expense of profitability," CFO Brian Gladden said in a letter to investors.
Results were better in its Enterprise Solutions Group, which sells servers, storage and network gear, where revenue was up 8 percent to $3.3 billion, Dell said. Services revenue was also up slightly, to $2.1 billion.
Using nonstandard accounting methods, which excludes certain costs and charges, Dell reported a profit of $433 million for the quarter, or $0.25 per share. On that basis, profits were in line with analysts' expectations, according to Thomson Reuters.
Dell's expenses in the quarter also included $125 million related to the privatization effort, the integration of acquisitions and layoffs, the company said.
Dell released the results a few days ahead of schedule, because of the "heightened interest in the company," spokesman David Frink said. It opted to forgo the usual conference call with financial analysts, publishing instead a letter from its CFO and other materials.
Michael Dell announced his plan to take Dell private back in February. He's trying to grow the data center side of Dell's business, which is more profitable than the PC side, and says he can do it more effectively if Dell is private, away from the scrutiny of Wall Street.
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