PC market slump dings Dell Q1 profit

PC market slump dings Dell Q1 profit

Summary: Reporting its first quarter earnings five days earlier than expected, Dell reported a dismal first quarter as a result of the continued crumbling of the PC market.

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TOPICS: Dell
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As the PC market continues to spiral downwards, the world's third largest PC maker is tumbling down with it.

Dell on Thursday reported its first quarter earnings five days earlier than expected, due to a report by The Wall Street Journal detailing leaked numbers on Monday.

The PC maker reported $372 million on revenue of $14.07 billion, or 21 cents a share. 

According to average analyst estimates compiled by Thomson Reuters, Dell was expecting to report net income of $607.10 million on revenue of $13.5 billion, or 35 cents per share. 

The Journal said Dell would exceed revenue expectations with $14 billion, yet miss on earnings-per-share at 20 cents per share on a non-GAAP basis.

Breaking down the figures:

  • The firm's Enterprise Solutions Group generated $3.1 billion in revenue, a 10 percent increase year-over-year. While the unit's server and networking revenue increased by 16 percent, its storage revenue decline by 10 percent.

  • Dell Services grew marginally by 2 percent to $2.1 billion, but applications and business process services declined by 15 percent. Meanwhile, Dell Software's unit resulted in an overall operating loss. The company said the unit is on track to be accretive to earnings during in two years' time.

  • Dell's PC building unit, the End User Computing unit, saw $8.9 billion in revenue, a 9 percent decrease. Its mobility revenue dinged the unit the most, dropping from $4.3 billion to $3.6 billion in the space of one year.

  • The company ended the quarter with $13.2 billion in cash, including investments.

Screen Shot 2013-05-16 at 16.28.55
(Image: Dell)

Dell chief financial officer Brian Gladden said the company was "confident" in its overall strategy, as the firm prepares to go private in the coming months. He elaborated in prepared remarks:

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. We’ll also continue to make important investments to support our strategy and drive long-term profitability.

It's not a huge surprise that Dell's first quarter earnings are weak, based on results from previous quarters.

The PC market is slipping while the post-PC market continues to expand. Dell missed a beat by failing to embrace post-PC devices as quickly as other manufacturers. 

Earlier this year, the company projected a modest growth in the PC industry, in line with Windows 8's release. But in denying that the traditional PC is on its way out, its forecasts didn't line up with what's actually happening on the front line.

Also, in its bid to take itself off the stock market, it's opened its books up to financial scrutiny. And some who have put in offers for the firm aren't happy.

Dell put the wheels in motion to go private back in February. Company founder and chief Michael Dell and investment firm Silver Lake offered $24.4 billion, or $13.65 per share. Microsoft offered $2 billion to the buy-out pot. 

A month later, the Blackstone Group offered to buy Dell for $25 billion, but shortly after pulled its proposal citing a 14 percent drop in PC shipments and the company's "rapidly eroding financial profile." By this point, it was clear that Dell's financial position was worse as it continues to expand its software and services portfolio and datacenter hardware footprint.

In the year to date, Dell's share price has risen by as much as 43 percent, but dipped and leveled out around the $13 per share mark in recent weeks. The PC maker closed down slightly at $13.43 a share. 

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(Image: Google Finance)

Given the company's plans to go private, Dell did not provide an outlook for the second quarter.

Topic: Dell

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8 comments
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  • PC market slump dings Dell Q1 profit

    Slump = Windows 8 & Surface RT

    End Of Story......Period
    Over and Out
    • Mac buys dropped, and Chromebooks have poor sales.

      Is Windows 8 the cause of it too?

      Oh, and the Earth is getting closer to the sun.

      Is that also Microsoft's fault?
      ForeverCookie
      • Re: Mac buys dropped, and Chromebooks have poor sales.

        Apple's whole product line is stagnating, and Chromebooks are actually up on where they were before.
        ldo17
      • Careful with that claim

        I don't think it means what you think it does. Mac sales have lost 7 % to a category Apple is very strong in. PCs generally have lost 15 %. Smarter analysts than any of us peg Windows 8 for that gap.

        Meanwhile both Microsoft and Dell are struggling to make any headway at all in the near category. That is also a Windows 8 story, and not a good one.
        Mac_PC_FenceSitter
  • Margins were below, but revenue was actually above expectations

    If I am interpreting this news correctly, it indicates the market is *not* slumping as much as feared, but rather that the market is just getting more competitive.
    x I'm tc
    • Re: it indicates the market is *not* slumping as much as feared

      Depends on which "market" you're talking about. PC sales are falling off a cliff.
      ldo17
      • Disagree

        I suspect PC sales will be a whole lot stronger than the naysayers predict. Of course, the argument may actually be a semantic one, as it may depend on what is considered a PC.
        x I'm tc
        • Re: I suspect PC sales will be a whole lot stronger than the naysayers pred

          Year-on-year decline for about the fourth quarter in a row not enough for you? Double-digit declines in major markets not enough for you?
          ldo17