Dell Disappoints with Refusal to Comment on LBO

Dell Disappoints with Refusal to Comment on LBO

Dell (NASDAQ:DELL) posted better than expected results due to the strength of its server and networking business. The company likely gained share in the server market as its sales benefited from the adoption of Romley-based machines and hyperscale servers. PCs were weak across the board as management continues to de emphasize the business. As expected, Dell did not offer any forward looking comments or guidance due to its decision to go private. Investors were hoping that Dell would discuss this issue on the conference call.

Dell’s revenues and EPS came in at $14.3B and $0.40 versus consensus of $14.1B and $0.39, respectively. The upside in revenues was driven by better than expected sales of servers and networking, which grew by 18% Y/Y, while all other product categories posted Y/Y declines. The company posted upside to margins as well due to its improved product mix. Dell (NASDAQ:DELL)’s F4Q13 operating margin of 6.7% compared with consensus of 6.3%.

The company’s 5% revenue growth in servers was due to share gains versus other players. Dell experienced strong traction of its hyperscale servers as well as migration to its Romley based servers, which contributed about 80% of its server sales. Networking grew by 42% Y/Y while PCs experienced a 20% decline.

The company posted 14%, 10% and 9% declines in EMEA, Americas, and APJ, respectively. Large enterprises fell by 7%, public sector declined by 9% and SMBs experienced a 5% drop while consumer was down by 24%. The decline
in these segments was primarily driven by PCs while server and networking sales grew in all customer categories.

SG&a increased 40 basis points sequentially to 14% of rev knew while R & D was up sequentially to 2.1% of revenue. According to the company, the dollar increase in SG&a was driven by recently closed acquisitions, strategic investments in sales capabilities, and expenses related to the merger transaction. The R & D increase was driven by recent acquisitions in software, predominantly the Quest business. Operating income was $954 million or 6.7% of revenue. Earnings per share were $.40 which declined 22%. Dell generated cash flow from operations of $1.4 billion partially driven by the sequential growth in Dell’s business and an improved payable cycle. Dell’s cash and investments balance ended at $15.3 billion.

Dell (NASDAQ:DELL) disappointed many by refusing to discuss the LBO/going private news. On the conference call the company stated:

As you know the Board of Directors of Dell acting on the recommendation of the special committee of independent Directors unanimously approved a merger agreement to take the Company private subject to a number of conditions. Given the nature of this transaction, we are not going to address any questions on this matter in todays Q & A. Now I’d like to turn it over to Brian.