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Dell’s net income declines 79 per cent in first-quarter

Revenue declines 2 per cent, but ahead of analysts’ expectations.

Dell, the third-largest PC maker by shipments, has posted 79 per cent slide in net earnings to $130m in the first-quarter of fiscal 2014, compared to $635m for the same period a year ago, due to sluggish demand for personal computers (PC) and narrower margins.

Revenue declined by 2 per cent to $14.07bn, though ahead of analysts’ expectations of $13.5bn, while operating income fell by 73 per cent to $226m (2012: $824m).

For the sixth straight period, the company saw year-over-year net earnings dip even as it made efforts to slash the PC prices to attract consumers, who are shifting to tablets and smartphones.

During the quarter, the company’s enterprise solutions group revenue grew by 10 per cent to $3.1bn, while revenue from services division increased by 2 per cent to $2.1bn, primarily due to  11 per cent rise in revenue in infrastructure, cloud and security services.

The company’s software and end user computing divisions reported revenue of $295m and $8.9bn, respectively.

Brian Gladden, CFO of Dell, said: “We made progress in building our enterprise solutions capabilities in the first quarter and are confident in our strategy to be the leading provider of end-to-end scalable solutions.”

Gladden added: “In addition, 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.”

The disappointing first quarter results add weight to Dell founder Michael Dell's effort to take the company private.

In February 2013, Dell launched a $24.4bn leveraged buyout bid in partnership with the Silver Lake private equity group.

The company had indicated that it could reinvigorate growth much more easily if it goes private as it would not be scrutinised by the market.

However, the $13.65 per share offer was opposed by some shareholders, including Southeastern Asset Management Inc and activist investor Carl Icahn, who claimed that the offer undervalued the company.

Last week, the major shareholders proposed an alternative plan that would allow them to continue holding company stock, and get a one-time payout of $12 a share either as cash or  stock.

Over the recent years, Dell has been trying to shift its dependence from lower-margin PC business to higher margins products and services such as storage systems, security software.

Erik Gordon, a professor at the Ross School of Business at the University of Michigan in Ann Arbor told Bloomberg: “The timing is perfect for Michael. It bolsters his claim that his offer is not the lowball many stockholders think it is.”

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The strange death of boozy Britain: why are young people drinking less?

Ditching alcohol for work.

Whenever horrific tales of the drunken escapades of the youth are reported, one photo reliably gets wheeled out: "bench girl", a young woman lying passed out on a public bench above bottles of booze in Bristol. The image is in urgent need of updating: it is now a decade old. Britain has spent that time moving away from booze.

Individual alcohol consumption in Britain has declined sharply. In 2013, the average person over 15 consumed 9.4 litres of alcohol, 19 per cent less than 2004. As with drugs, the decline in use among the young is particularly notable: the proportion of young adults who are teetotal increased by 40 per cent between 2005 and 2013. But decreased drinking is not only apparent among the young fogeys: 80 per cent of adults are making some effort to drink less, according to a new study by consumer trends agency Future Foundation. No wonder that half of all nightclubs have closed in the last decade. Pubs are also closing down: there are 13 per cent fewer pubs in the UK than in 2002. 

People are too busy vying to get ahead at work to indulge in drinking. A combination of the recession, globalisation and technology has combined to make the work of work more competitive than ever: bad news for alcohol companies. “The cost-benefit analysis for people of going out and getting hammered starts to go out of favour,” says Will Seymour of Future Foundation.

Vincent Dignan is the founder of Magnific, a company that helps tech start-ups. He identifies ditching regular boozing as a turning point in his career. “I noticed a trend of other entrepreneurs drinking three, four or five times a week at different events, while their companies went nowhere,” he says. “I realised I couldn't be just another British guy getting pissed and being mildly hungover while trying to scale a website to a million visitors a month. I feel I have a very slight edge on everyone else. While they're sleeping in, I'm working.” Dignan now only drinks occasionally; he went three months without having a drop of alcohol earlier in the year.

But the decline in booze consumption isn’t only about people becoming more work-driven. There have never been more alternate ways to be entertained than resorting to the bottle. The rise of digital TV, BBC iPlayer and Netflix means most people means that most people have almost limitless choice about what to watch.

Some social lives have also partly migrated online. In many ways this is an unfortunate development, but one upshot has been to reduce alcohol intake. “You don’t need to drink to hang out online,” says Dr James Nicholls, the author of The Politics of Alcohol who now works for Alcohol Concern. 

The sheer cost of boozing also puts people off. Although minimum pricing on booze has not been introduced, a series of taxes have made alcohol more expensive, while a ban on below-cost selling was introduced last year. Across the 28 countries of the EU, only Ireland has higher alcohol and tobacco prices than the UK today; in 1998 prices in the UK were only the fourth most expensive in the EU.

Immigration has also contributed to weaning Britain off booze. The decrease in alcohol consumption “is linked partly to demographic trends: the fall is largest in areas with greater ethnic diversity,” Nicholls says. A third of adults in London, where 37 per cent of the population is foreign born, do not drink alcohol at all, easily the highest of any region in Britain.

The alcohol industry is nothing if not resilient. “By lobbying for lower duty rates, ramping up their marketing and developing new products the big producers are doing their best to make sure the last ten years turn out to be a blip rather than a long term change in culture,” Nicholls says.

But whatever alcohol companies do to fight back against the declining popularity of booze, deep changes in British culture have made booze less attractive. Forget the horrific tales of drunken escapades from Magaluf to the Bullingdon Club. The real story is of the strange death of boozy Britain. 

Tim Wigmore is a contributing writer to the New Statesman and the author of Second XI: Cricket In Its Outposts.