Dell Inc. on Thursday filed what might be its last public earnings report for years to come —- a document that could become Exhibit A in making the case to investors and to a Delaware court on why its proposed buyout needs to go through.
The Round Rock-based computer maker posted second quarter earnings that were both very weak compared with a year ago and still slightly better than what financial analysts expected in the midst of a global personal computer sales slump.
Its profits were anemic — down 72 percent from the same quarter a year ago — but the company showed signs of gaining some traction in selling more hardware, software and services to enterprise customers, which is at the center of its plan to revamp the business.
Analysts said the results reinforced CEO and founder Michael Dell’s case about why he wants to buy the company, take it private and transform its business.
“This is evidence of exactly what Michael is talking about,” said analyst Roger Kay with Endpoint Technologies Associates. “He has been saying that this (turnaround) is going to be a work in progress and it is not going to be a pretty transition. That is why he wants to do it behind the curtain.”
Michael Dell, along with financial ally Silver Lake Partners, is proposing to buy the company in a $24 billion-plus deal that shareholders are scheduled to vote on Sept. 12. Billionaire investor Carl Icahn is opposing the buyout and wants to oust Michael Dell from leadership of the company he started as a University of Texas student in 1984.
A Delaware judge on Friday is expected hear Icahn’s request for an expected hearing on his lawsuit against the Dell Inc. board of directors. That suit seeks to halt the proposed shareholder vote and change the rules more to Icahn’s liking. Icahn’s aim is to defeat the buyout and push for his own slate of directors to take control of the Dell Inc. board.
The suit is being heard in Delaware because Dell Inc., like many major companies, is incorporated there due to the state’s corporation-friendly laws.
For now, Kay said prospects for the Michael Dell-led buyout appear favorable. “Right now, it is looking pretty good,” he said. “My guess is he (Michael Dell) is going to get it.”
Michael Dell’s plan is to win approval for the buyout and take the company private this fall and continue making the big changes it needs to center its business on the information technology needs of midsized business customers and government agencies.
“It takes 10 years to go from being a PC-centered company to becoming an enterprise player,” said analyst Patrick Moorhead of Moor Insights & Strategy. “Dell is five to six years into that process, and they need another good four to five years to really solidify a holistic product offering.”
The turnaround plan, analysts say, will involve costly investments in the company that will undermine short-term earnings, but could yield long-term results. If the turnaround succeeds, analysts say, Dell Inc. could go public again in five years or so as a revamped company with a healthier business model.
Dell Inc. would then be a company with a complete information technology product and service offering for business customers and offering products that address where the information technology industry is moving — toward supporting the shift to mobile devices and the increased reliance on cost-efficient cloud computing services.
Thursday’s results showed that company is already starting to move in that direction, even though its revenue for the latest quarter was flat from a year ago and profits were down 72 percent.
The company reported a net profit of $204 million, or 12 cents a share, on revenue of $14.5 billion, which compared with a profit of $732 million, or 42 cents a share, on revenue of $14.5 billion a year ago.
Its PC sales revenue was down 5 percent from a year ago. But sales of its hardware, software and services to enterprise customers grew by 9 percent from last year to total $5.8 billion.
“In a challenging environment, we remain committed to our strategy and our customers, and we’re encouraged by increasing customer interest in our end-to-end solutions offerings,” chief financial officer Brian Gladden said.
Sales of enterprise solutions, including servers and networking gear, totaled $3.3 billion, up 8 percent from last year, with operating income of $137 million, down 9 percent. Dell Inc. services revenue totaled $2.1 billion, up 2 percent, with operating income of $339 million, up 1 percent.
Dell Inc. software revenue totaled $310 million with an operating loss. Its personal computer revenue was $9.1 billion, down 5 percent with an operating income of $205 million, a 71 percent decrease.
Dell Inc. remains the area’s largest private employer with about 14,000 employees in Central Texas and more than 100,000 worldwide.
Dell’s stock closed at $13.71 a share, down 2 percent, in light trading. That is just below the proposed buyout price of $13.75 a share.