Dell Inc. (DELL) 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 earnings miss.
Revenues
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
Large Enterpriseposted 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.
Public Revenuewas $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 in revenue.
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%.
Consumer Business 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.
Operating Results
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 income.
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.