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Dell Sales Top Estimates as Company Prepares for Buyout

Dell Sales Top Estimates as Company Prepares $24.4 Billion LBO
Dell Inc. signage is displayed outside of the company's headquarters in Austin. Photographer: Sam Hodgson/Bloomberg

Dell Inc., the personal-computer maker planning to go private in a $24.4 billion deal, reported sales and profit that topped analysts’ estimates, reflecting server and software demand from companies even as PC sales drop.

Revenue fell 11 percent to $14.3 billion in the fiscal fourth-quarter that ended in January, exceeding the $14.1 billion average estimate of analysts, according to data compiled by Bloomberg. Earnings excluding certain items declined to 40 cents a share, compared with analysts’ 39-cent estimate.

Yesterday’s results suggest Chief Executive Officer Michael Dell has made headway in his campaign to transform the company into a provider of a broad range of business-technology products. Dell’s earlier struggle to gain share in mobile devices and a late entrance into cloud computing contributed to a 31 percent decline in its stock in 2012, prompting Dell to seek a buyout.

“The strength in the enterprise business indicates their focus on that business is working as they had thought,” said Abhey Lamba, an analyst at Mizuho Securities USA Inc., who has a neutral rating on Dell. “Their focus is on the high-margin businesses, which is showing up in the results.”

Dell rose less than 1 percent to $13.83 at the close in New York. The stock has risen 27 percent since Jan. 11, the last trading day before Bloomberg News reported the company was in talks to go private.

Deal Focus

Michael Dell and Silver Lake Management LLC offered $13.65 a share to take Dell private in the largest LBO since the financial crisis. Some stockholders want a higher price, and the results could strengthen their hand, Lamba said.

Dell didn’t discuss the proposed transaction on a conference call yesterday, and CEO Dell didn’t address analysts as he usually does. Investors are more focused on the deal than quarterly results, said Shaw Wu, an analyst at Sterne Agee & Leach Inc.

“That seems to be more important than the quarter itself in determining the near-term stock direction,” said Wu, who has a neutral rating on Round Rock, Texas-based Dell. “The results won’t matter as much.”

Fourth-quarter net income declined 31 percent to $530 million, compared with analysts’ $551 million estimate. Dell benefited from about $250 million in legal settlements during the quarter.

Servers, Networking

Robust demand for Dell’s networking gear and servers, which run websites and corporate networks, offset weakness in other divisions. Server and networking sales rose 18 percent to $2.62 billion last quarter. That partly offset a 14 percent decline in desktop PCs and a 25 percent slide in the company’s mobility division, which included laptop computers.

Mizuho’s Lamba had expected server and networking sales growth percentage to be in the “low teens,” and said Dell is gaining share from International Business Machines Corp. It’s also wooing companies that are buying many servers to run large websites.

In data-center products and services -- where Dell has acquired 18 companies for $12.7 billion since 2009 -- it also faces competition from Cisco Systems Inc. and Oracle Corp.

Dell, the world’s third-largest PC maker, is suffering from declining demand for desktops and laptops. Global PC shipments declined 4.9 percent in the fourth quarter of 2012, according to market researcher Gartner Inc., and Dell’s shipments fell 21 percent.

PC Slump

The company hasn’t capitalized on consumers’ and businesses’ shift toward smartphones and tablets, which are replacing traditional PCs for many tasks. Windows 8, the version of Microsoft Corp.’s PC operating system that’s designed to run on tablets as well, has gotten off to a slower-than-expected start since its October arrival, an executive at Dell rival Hewlett-Packard Co. said in January.

During the conference call, Chief Financial Officer Brian Gladden said government spending, which accounted for about 24 percent of Dell’s sales, continue to be “challenging” as U.S. federal customers delay signing contracts.

With business customers, Dell is benefiting from continued replacements of older PCs running Microsoft Corp.’s Windows XP and Windows Vista, to the more than three-year-old Windows 7, Gladden said. Dell’s PC business helps spark sales of other products, he said.

“That’s an important part of our business model,” he said.

Sales Forecasts

Dell’s sales for fiscal 2014, which began in February, may fall 1.3 percent to $56 billion, according to analysts’ estimates. Earnings excluding some items may decline 2 percent to $1.68, according to data compiled by Bloomberg.

Michael Dell and private-equity firm Silver Lake seek to take Dell private amid stiffening competition in mobile and cloud computing. The buyers need approval by a majority of shareholders, excluding Michael Dell, and face opposition to the deal from the company’s two largest outside shareholders.

T. Rowe Price Group Inc. and Southeastern Asset Management, which together own more than 10 percent of the stock, have said Dell is worth more than the buyers have offered. The computer maker is setting up meetings with shareholders to assess their demands for getting the buyout done, people with knowledge of the situation have said.

Download: Earnings

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