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Dell's Business Hasn't Gotten Much Better Since It Went Private

Its finances show it to be largely the same company fighting against declining sales that it was in 2013, except the cash flows are better.

Justin Sullivan / Getty

Dell, which is in the process of buying data storage giant EMC for $67 billion, lost more than 10 percent of its core PC business in the first half of this year and has essentially stayed flat since going private two years ago, according to regulatory filings.

Dell left the public markets in 2013 in a $25 billion leveraged buyout, but the company’s businesses haven’t fared much better in the hands of private investors.

The new look at Dell’s finances came by way of EMC’s preliminary proxy filing with the U.S. Securities and Exchange Commission. And while making direct apples-to-apples comparison to its days as a public company is a little tricky, there’s a lot we didn’t know about Dell as a private company that, when taken against the backdrop of its $67 billion proposal to take over EMC, is very interesting indeed.

Sales of personal computers, which account for more than two-thirds of the company’s revenue, reached $28.9 billion in the 2015 fiscal year ended Jan. 31, essentially flat from Dell’s final fiscal year as a public company. And that decline continued into the first half of this year. Sales of PCs fell by about $2 billion or 12 percent to $15.4 billion in the six months ended July 31.

Overall, annual sales were nearly flat for the fiscal year ended Jan. 31, to slightly above $58 billion from $57 billion in the same period in 2013, and this happened despite the fact that sales in nearly every line of business except servers have recently been declining.

Gross margins, a key metric indicating the potential for profitability, fell to 19.9 percent in the 2015 fiscal year from 22.3 percent in 2013. Operating profit for fiscal 2015 was $3.2 billion, down from $4 billion when it was still publicly held.

The filing shows declines in most of Dell’s other business lines too. The one exception is servers, which along with networking gear grew during the most recent six-month period by about 4 percent. Services, which includes the Perot Systems unit that’s being shopped to potential buyers, declined 6 percent to $1.4 billion in the first half of the year, and operating income rose 72 percent to $62 million.

All in, the filing makes Dell looks very much like a company struggling to turn the corner in a market were PCs are strategically less important and enterprise systems including servers, storage, networking and cloud services are incrementally more important and profitable. A solid look through the filing gives you a pretty good understanding of why Dell and its partner Silver Lake intend to raise about $40 billion in new debt and issue tracking shares to buy out EMC.

It’s all just numbers on a page, but it tells a wider story: Dell is buying EMC to get into the enterprise business it says it wanted to build when it first went private in 2013 but has as yet been unable to create. EMC excels in areas like industrial-grade storage where Dell is more of middling player.

And EMC also has a controlling stake in VMware, the crown jewel of its technology federation, which Dell will control if and when the deal closes next year. The software company specializes in virtualization, a key technology in the evolution of cloud computing that allows one computer to act like many. It grew to $6 billion in annual sales as of last year, up from $4.6 billion in 2012.

The filing also cleared up another interesting fact: It includes a cap table showing that CEO and founder Michael Dell owns a combined 65 percent of Dell as of Dec. 1 plus another 4 percent through his investment office, MSD Capital. The company’s co-owner, the private equity firm Silver Lake, owns about 24 percent. Another 6 percent is owned by a trust controlled by Dell’s wife.

Michael Dell and Silver Lake took Dell private in a $25 billion buyout in 2013. The transaction closed after activist investor Carl Icahn launched a failed bid to wrest control of the company away from Dell.

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