Dell Purchases Gale Technologies, But Misses Earnings Estimates

Dell Purchases Gale Technologies, But Misses Earnings Estimates
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Dell Inc. (NASDAQ:DELL) reported its disappointing third quarter earnings on Thursday. Many of Dell’s business units showed weakness. Though the company maintains its full-year earnings outlook, third quarter results were lower than the already low analysts’ estimates.

Dell Purchases Gale Technologies, But Misses Earnings Estimates

Dell Inc. (NASDAQ:DELL) revenues declined 11 percent during the third quarter to $13.7 billion. Net income stood at $475 million or 27 cents per share, compared to $893 million in the same quarter a year ago. Analysts were expecting 40 cents per share in earnings on a revenue of $13.9 billion.

Sales of desktop PCs were down 8 percent, and laptop sales declined 26 percent from the last year’s third quarter. The company is clearly losing market share in PC business, and tablets and smartphones by Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co., Ltd. (LON:BC94) have also negatively affected PC sales. Its PC-to-enterprise model remains poor, as companies tightly monitor their IT budgets. Additionally, Dell doesn’t expect a Windows 8 demand boost in the fourth quarter.

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For the fourth quarter, the company projects revenues to rise 2-5 percent from Q3. Analysts are expecting an increase of 4.7 percent. Dell Inc. (NASDAQ:DELL) is working to diversify away from the declining PC market, but it still contributes more than half of Dell’s total revenues. The transition is taking much longer than expected, and the recent launch of iPad Mini won’t make it easy.

Dell Inc. (NASDAQ:DELL) shares plunged more than 7 percent to $8.85 in New York trading. The company’s shares have declined more than 33 percent this year, putting it among the worst tech performers in S&P 500. Analysts are giving Dell a thumbs-down. Chris Whitmore, a senior analyst at Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) Securities slashed his price target for Dell from $16 to $13.

Goldman Sachs analysts believe that enterprise spending may have shown some signs of stabilizing in the month of October after solid earnings reports from Cisco and NetApp painted a much different picture than their calendar quarter peers. Dell noted that there was some enterprise strength in the month of October (relative to earlier in the quarter) as well, but broader secular pressures appeared to counteract this for the company. Indeed, in large enterprise, Dell posted revenue declines of 8% as the company saw deferrals of discretionary IT hardware purchases from many large commercial customers.

Dell Acquires Gale Technologies

With all the bad news, the company tried to sweeten the day by announcing an acquisition. It acquired Gale Technologies, a privately held company that specializes in infrastructure automation software. Gale’s customers include Ericsson, Alcatel Lucent SA (NYSE:ALU), and Verizon Communications Inc. (NYSE:VZ). Gale technologies automates and orchestrates a firm’s computing, storage and networking resources.

Though Dell didn’t disclose the terms of the deal, analysts expect it to be very small. With this acquisition, Dell Inc. (NASDAQ:DELL) will now be able to compete with Hewlett-Packard Company (NYSE:HPQ) in managing private and public clouds.

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