Dell Inc’s woes worsened during its most recent quarter as the slumping PC maker resorted to rampant price cutting to slow a sales decline driven by a growing reliance on smartphones and tablets to connect to the Internet and perform other technological tasks.
The discounting contributed to a 72 percent drop in Dell’s fiscal second-quarter earnings.
The disheartening results announced on Thursday could help Dell’s board persuade more of the company’s stockholders that they are better off accepting a buyout offer from a group led by CEO Michael Dell rather than risk further financial deterioration in the months ahead.
After Dell’s report came out, ISI Group analyst Brian Marshall advised shareholders to “take the money and run.”
Shareholders are scheduled to vote on Michael Dell’s US$24.8 billion bid on Sept. 12.
The proposal faces fierce resistance from two major Dell stockholders, billionaire Carl Icahn and investment fund Southeastern Asset Management, who contend the Texas company is worth more than the US$13.88 per share being offered by Michael Dell and his main ally, Silver Lake Partners.
The opposing arguments have been compelling enough to prompt Dell’s board to delay the shareholder vote on the deal three times.
Before the last delay, Michael Dell and Silver Lake agreed to pay a special dividend of US$0.13 per share to supplement a bid that had already been raised from US$13.65 per share to US$13.75 per share.
Dell’s stock dipped US$0.06 to US$13.65 in extended trading after the report came out.
Although Dell’s fiscal second-quarter results painted a dismal picture of the PC market, the numbers could provide Icahn and Southeastern with material to bolster their contention that the company will fare better in the future as it diversifies into higher-end computing for companies, business software, data storage and technology consulting.
Some of the Dell divisions focusing on those areas showed progress in the latest quarter. For instance, revenue in Dell’s services division edged up 3 percent compared with the same time last year and also made slightly more money.
Revenue in the business software arm more than tripled during the quarter, largely because of an acquisition, but the losses widened in that division.
The company earned US$204 million, or US$0.12 per share, in the quarter ending Aug. 2, from US$732 million, or US$0.42 per share, last year.
If not for certain items unrelated to its ongoing business, Dell said it would have earned US$0.25 per share in the latest period. That figure was a penny above analysts’ expectations.
Revenue remained level at US$14.5 billion — nearly US$400 million above analysts’ predictions.
SRevenue in Dell’s PC division declined from 5 percent from last year to US$9.1 billion, while operating profit plummeted 71 percent.
Sales of desktop computers edged up slightly during the quarter, but revenue from laptops fell 10 percent as tablets gained more traction.
“We continue to see challenged demand in this business and continued market competitiveness,” Dell said of the PC division in a prepared statement.