Dell Amidst Declining Fundamentals and Uncertain Investors

The continuing dismal performance of the worldwide PC industry and Dell’s (NASDAQ:Dell) inability to make a mark within the fast growing mobile device market has not helped their performance. The weak results are also not helping investors who were looking to counter Dell’s proposal of going private through a $24.4 billion Leveraged Buy-Out (LBO) by founder Michael Dell and Silver Lake Partners.

Dell’s Financials
In the recently reported earnings, Dell saw Q1 revenues fall 2% over the year to $14.1 billion, but managed to surpass market expectations of $13.5 billion. EPS of $0.21 fell 51% over the year and was far short of the Street’s targeted earnings of $0.34 per share for the quarter. Dell’s weak earnings were attributed to the heavy discounts the manufacturer offered on their PC products during the last quarter.

By segment, End User Computing segment remained a cause of concern with revenues falling 9% over the year to $8.9 billion, driven by a reduction of 16% in revenues from mobility devices, primarily laptops. Revenues from Enterprise Solutions Group improved 10% over the year to $3.1 billion as they saw 16% growth in server and networking businesses. Dell’s services segment revenues improved 2% to $2.1 billion and the Software segment brought in $295 million for the quarter.

Dell did not give any outlook for the current quarter, but analysts estimate that they will record revenues of $13.9 billion and earnings of $0.38 per share.

Dell’s Enterprise Moves
Despite it being a weak quarter, Dell has been working on expanding their presence in the Enterprise sector. They want to be the “leading provider of end-to-end scalable solutions” for organizations. As part of this move, they are enhancing their software offerings, cloud services and even hardware products available to enterprise customers.

Recently, they launched 3 new PCs targeted at the enterprise segment. Precision T1700 was released both as a small form-factor machine and as a mini-tower workstation. The T1700 small form-factor machine claims to be nearly a third smaller than other similar machines and will help manage space constraints on an employee’s workstation. Both the T1700s are expected to be competitively priced as Dell wants more contracts. They also released a Precision R7610 rack-mounted workstation that will help their enterprise customers with securing, managing and sharing data more economically.

They also announced the acquisition of cloud services provider, Enstratius. Enstratius offers enterprise cloud-management software services to deliver single and multi-cloud management capabilities. Through their services, enterprise customers are able to manage, provision and scale applications across private, public and hybrid clouds. They support over 20 public and private cloud platforms, including OpenStack, VMware, Rackspace, Amazon Web Services and Windows Azure. Terms of the deal were not disclosed.

Dell has a rough road ahead. The PC market’s slump seems unrelenting and Dell still needs to come up with products and services that will help it make a bigger mark in the enterprise market. To top it all, there is the uncertainty about them remaining a publicly traded organization.

Earlier this year, they announced the plans of becoming a private company through an LBO. But, the move has been discouraged by some of their big investors, billionaire Carl Icahn and Southeastern Asset Management. The two believe that Dell has the ability to command a better price than what is being offered by Michael Dell and Silver Lake Partners. A decision on the buy-out is expected to be held as part of the shareholder’s meeting in early August. Meanwhile, their stock is trading at $13.37 with a market capitalization of $23.37 billion. It touched a year high of $15.29 in May last year.