Dell Inc.
(
DELL
) delivered third quarter 2013 earnings of 39 cents per share in
the third quarter of 2013, in line with the Zacks Consensus
Estimate. The quarter's earnings were, however, 28.0% lower than
the prior year level.
The disappointing result was mainly driven by lackluster PC
business. Dell is making considerable efforts to shift its focus
from the legacy PC business to higher-margin enterprise services,
stiff competition in the hardware and software businesses is
posing the biggest challenge for the company.
Revenues
The company reported revenues of $13.7 billion in the reported
quarter, which tumbled 10.5% on a year-over-year basis. The
decline in revenue was due to lower contributions from all the
business segments.
Revenue by Segments
Large Enterprise
posted revenue of $4.2 billion, down 8.0% year over year, due to
pricing pressure from the client side.
Public Revenue
was $3.8 billion, down 11.0% year over year. The company
continues to witness a slump in the U.S. Federal business.
Moreover, the company witnessed significant reduction in consumer
spending in the month of October. The company also continues to
see budgetary constraints with respect to spending by Western
European governments.
Small and Medium Business
revenue inched down 1.0% to $3.3 billion. Within the SMB segment,
the company witnessed Enterprise Solutions and Services growth of
15.0%, including 22.0% growth in Services, while servers and
networking grew by 16%.
Consumer Business
revenue plummeted 23.0% to $2.5 billion. Within this segment,
industry growth continued in the low-value and entry-level
desktop and notebooks while the company maintained its
participation in the tablet business.
Operating Results
Gross margin in the reported quarter declined to 20.9% from
22.6% in the year-ago quarter.
Operating income for the quarter was $589.0 million or 4.3% of
revenues in the reported quarter, down 48.0% year over year, hurt
by higher rate of expenses growth than revenue.
GAAP earnings in the quarter were 27 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 came in at 39
cents versus 54 cents in the year-ago quarter.
Balance Sheet & Cash Flow
The company exited the quarter with cash and cash equivalents
of $10.9 billion, down from $11.5 billion reported in the
previous quarter. Moreover, Dell's cash conversion cycle of
negative 32 days, improved 2 days sequentially, as a result of
better inventory and receivables management.
Guidance
The company expects the global macroeconomic challenges to
continue in the fourth quarter of 2013, and hence expects revenue
to grow 2.0% to 5.0% sequentially. For the full year, the company
expects EPS to be roughly $1.70 on a non-GAAP basis.
Our View
Dell reported mediocre third quarter results with earnings per
share in line with the Zacks Consensus Estimate, but revenue and
operating income taking a massive hit. Revenue across the entire
business segment declined annually.
The major issue faced by the company is the cannibalization of
the PC/notebook business. Moreover, the company is facing tough
challenges due to cut-throat competition, low business growth in
Europe and restricted spending environment. Some analysts also
expect further decline in PC shipments.
Moreover, competition faced by the company in the SMB and
server segments from players like
Hewlett-Packard Company
(
HPQ
) and
Cisco Systems Inc.
(
CSCO
) is also a concern.
The stock has a Zacks #4 Rank, implying a short-term Sell
rating.
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