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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.”