) delivered earnings of 43 cents per share in the first quarter of
2013, missing the Zacks Consensus Estimate of 46 cents. Following
the earnings release, the company's share price plunged more than
12.0% in Tuesday's after hour trade. The cannibalization of desktop
PC market due to the growth of tablets and ultrabooks, as well as
constrained IT spending by the U.S. and Euro zone has led to the
Dell reported total revenue of $14.42 billion in the reported
quarter, down 4.0% from the year-ago quarter. Large Enterprise and
Public reported revenue declined while the Small & Medium
business segment improved marginally.
Revenue by Segments
posted revenues of $4.4 billion, down 3.3% year over year. The
decline in revenue was driven by lower business activity in the
developed markets, resulting in a revenue decline of 6.0% in the
same. Although the pipeline of new orders is decent but the
customers are delaying their spending on new IT products. The
company has started witnessing some improvements in U.S. federal
spending, but was a little disappointed by the dismal performance
of K-12 and the health care businesses.
was $3.46 billion, down 4.3% year over year. The downside in
revenue can be attributed to the weakness in the U.S. This segment
continues to see spending pressure, which resulted in the decline
Small and Medium Business
revenue rose 3.6% to $3.47 billion. Revenue growth in this segment
was driven by enterprise service and solution growth. The company's
SMB segment continues to nurture strong relationships with its
existing customers. Region wise, Asia-Pacific and Japan witnessed
the highest growth in this segment, which was up 10%.
revenue declined by a whopping 11.9% to $3.04 billion, with
notebook revenue down 15% as the company did not enter the
entry-level notebook market given that it is a low-margin business
mix. Moreover, the company has also expanded the number of channel
partners in this segment.
Gross margin in the reported quarter declined to 21.3% from
22.9% in the year-ago quarter. Gross margin for the quarter was
negatively impacted by the difficult pricing environment as far as
client products are concerned.
Operating income for the quarter stood at $824.0 million or 5.7%
of revenues in the reported quarter, down 32.0% year over year. The
company was not able to control its expenses properly; moreover,
lower revenues have also resulted in the decline in operating
GAAP earnings in the quarter were 36 cents per share compared
with 49 cents a share in the year-ago quarter. Excluding special
items like amortization of intangibles, severance and facility
consolidation cost, acquisition-related costs, as well as income
tax adjustments, earnings per share in the quarter were 43 cents
versus 55 cents in the year-ago quarter.
Balance Sheet & Cash Flow
Dell's cash conversion cycle was negative 32 days versus
negative 36 days in the previous quarter. The company used $138.0
million cash in operating activities, which is a significant
deterioration from $465.0 million cash generated in the year-ago
quarter. The company ended the quarter with $13.7 billion in cash
and short-term investments versus $14.8 billion in the previous
The company expects second quarter revenue to grow 2-4% from the
previous quarter, maintaining the same historical and seasonal
Dell reported disappointing first quarter results, with both
revenue and earnings per share (EPS) declining on a year-over-year
basis. Moreover, EPS was also below the Zacks Consensus Estimate.
Based on the current PC demand trend, level of consumer spending
and the macro uncertainties, we think that the second quarter
guidance is a bit aggressive. However, growth in Servers and
Services segments are encouraging.
Opportunities in the Electronic Medical Record sector, entry
into the smartphone business, increased focus on cloud computing
are positives for the company. However, new strategic move from
other players such as
may pose some challenges to the company.
The company has a Zacks#3 Rank, which implies a short-term Hold
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