THE WALL STREET JOURNAL.
EARNINGS | Updated May 16, 2013,
9:26 p.m. ET
Dell Earnings: Profit
Slides as Investor Base Shifts
Dell Inc.'s investor base is shifting ahead of a shareholder vote on the
company's proposed $24.4 billion buyout, as the computer maker on Thursday
posted an expected drop in quarterly profit.
Several longtime Dell
T. Rowe Price Group Inc., Brown Brothers Harriman & Co. and mutual-fund
group Oakmark Funds—have recently trimmed or dumped their shares in the
Round Rock, Texas, company, according to new disclosures.
the same time, investment funds including hedge funds Highfields Capital
Management LP and Taconic Capital Advisors LLC in recent days have reported
fresh purchases of Dell stock during the first quarter, at lower prices than
changing shareholder mix comes as Dell on Thursday posted a nearly 80%
decline in net income for its fiscal first quarter ended May 3. Revenue fell
2% to $14.1 billion.
numbers were expected after The Wall Street Journal and other media reported
earlier this week that Dell planned to post worse-than-expected quarterly
results. Dell on Thursday said the profit decline reflected actions by the
company to cut product prices and grab market share, and to spend money to
hire sales staff and bolster research-and-development efforts in software
and other newer businesses.
statement, Chief Financial Officer Brian Gladden said Dell took "actions to
improve our competitive position in key areas of the business," particularly
in the sharply declining PC market. The company's action "has affected
profitability," Mr. Gladden added.
The poor quarterly results and
changing stockholder base have implications for Dell as it heads toward a
shareholder vote on a disputed effort by private-equity firm Silver Lake
Michael Dell, the company's founder and chief executive, to buy out Dell
stockholders in a proposed $24.4 billion deal.
Dell's board has said a stretch of poor results—and management's inability
to accurately predict those results—was a significant factor in its decision
to approve the buyout offer. Meanwhile, several large Dell shareholders such
as Southeastern Asset Management Inc. have said the company may be
exaggerating its financial weakness to allow Mr. Dell to buy the company at
a fire-sale price.
it appears as if some shareholders aren't sticking around to find out the
outcome of a vote. Brown Brothers Harriman and Oakmark Funds recently said
they sold all or nearly all of their Dell shares.
spokeswoman for Brown Brothers didn't respond to a request for comment.
Oakmark in late April said it sold its Dell holdings to buy other shares
"that we are more confident are undervalued."
Meanwhile, T. Rowe Price, which has opposed the buyout offer, trimmed its
Dell holdings by about 5% in the first quarter, according to regulatory
disclosures. A spokesman for T. Rowe Price declined to comment.
Dell stock buyers, including hedge funds Highfields and Taconic, may be more
inclined to vote for a buyout because they may have purchased shares below
the $13.65-a-share buyout price offered by Silver Lake and Mr. Dell.
Taconic and Highfields declined to comment.
Dell shareholders who declined to be named said Thursday they are reserving
judgment on the latest financial results until they see more details in
coming days. These shareholders said Dell could have padded reserves or
taken other financial steps to artificially depress profit margins.
Southeastern and investor
Carl Icahn have proposed an alternative offer to allow Dell stockholders
to continue holding company stock, and receive a one-time payout of $12 a
share in cash or Dell stock. A special committee on Dell's board hasn't made
a decision on the Icahn-Southeastern proposal, but in a letter this week,
the board committee expressed skepticism that the duo's plan was feasible.
Icahn didn't return a call requesting comment. A spokesman for Southeastern
declined to comment on the Dell directors' letter.In all, Dell said
fiscal-first-quarter net income was $130 million, or 7 cents a share,
compared with the $635 million, or 36 cents a share, a year ago. Dell said
operating income from sales of PCs, tablets, and related products slipped
there were bright spots that may provide ammunition to investors such as Mr.
Icahn who want to continue owning Dell stock. The company said revenue from
selling software and other types of corporate-technology services rose 8%
from a year earlier, excluding the effects of an acquisition.
Dell's stock closed at $13.43 as of the 4 p.m. market close and was off 7
cents in after-hours trading.
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Corrections & Amplifications
Dell's fiscal first quarter revenue fell 2% to $14.1 billion. An earlier
version of this article incorrectly said revenue rose 2%.
version of this article appeared May 17, 2013, on page B3 in the U.S.
edition of The Wall Street Journal, with the headline: Dell's Profit Slides
as Investor Base Shifts.
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