Dell's Savior: Enterprise Solutions Group

Dell Inc. (DELL) world’s third-largest personal computer maker and Silver Lake Management LLC have secured enough votes for approval of their proposed $24.9 billion leveraged buyout.

After Corporate Raider, Carl Icahn dropped his opposition to the deal, opposing for almost seven months, Michael Dell seems to have won more than half of the battle. The voting results will be disclosed at September 12th meeting at Dell’s Round Rock, Texas, headquarters. Previously three attempts were made to hold this meeting, but were adjourned as CEO Michael Dell and Silver Lake were falling short of the votes they needed to secure this approval. 

The present proposal stands at $13.75 a share, plus a 13% special dividend and guaranteed payment of the company’s third-quarter dividend.

 Let's take a quick look at Dell's performance in the recent quarter, and also a look at their Enterprise Solutions Group or ESG, which they've been successful in.

Also check out Dell Inc.: Things You Ought To Know

Q1 2014 highlights:

· Delivered revenue of $14.1 billion, down 2%; the Enterprise Solution Services and Software Business was up 12% to $5.5 billion.

· Announced and closed the acquisition of Enstratius which improves their end-to-end solutions capabilities by enabling customers to more effectively manage and integrate their cloud environments.

·         Gross margin was $2.9 billion at $20.6 of revenue which was down 40 basis points sequentially when adjusting for last quarter's vendor settlements.

· SG&A increased 4% and as a percentage of revenue increased 20 basis points sequentially to 14.2%.

· R&D spending increased 33% and as a percent of revenue increased 10 basis points sequentially to 2.2%. Of note there were almost $90 million in expenses related to the pending go private transaction that were excluded from their non-GAAP results.

· Operating income was $590 million or 4.2% of revenue and non-GAAP tax rate of 28.7% is driven by a greater portion of their business and higher tax jurisdictions during the quarter.

· Earnings per share were $0.21 declining 51%, cash used in operations in the quarter was $39 million as the first quarter is typically a seasonal low for cash flow.

· On a trailing 12 month basis, cash flow from operations was $3.4 billion down 31%. Cash investments balance ended at $13.2 billion and they repaid approximately $2 billion in debt during the quarter.

Highlights of Enterprise Solutions Group or ESG:

· This business includes Servers, Networking, Storage and ESG related peripherals. Dell continue to see strong growth in ESG of 10% on revenue of $3.1 billion and operating income of $136 million or 4.4% of revenue. Within ESG, Server, Networking and Enterprise Peripheral Business delivered revenue of $2.7 billion which equates to 14% growth.

· It was driven by strong growth in hyper-scale data center servers, in this stage Dell servers power Four of the Top Five Search Engines and 75% of the top Social Media Sites worldwide.

· Networking Business increased 24%.

· Dell storage revenue was down 10% to $424 million, and is focused on continuing to more effectively position the right solutions based on customer needs and optimizing its selling motion to improve revenue momentum.

· The great example of this was a win with Statoil Norway as Dell’s global capabilities and convert solution displays legacy vendors in each of the traditional product sets.

· The services business includes a broad range of IT and business services including support and deployment services and infrastructure, Cloud, Security Services applications and Business Software Services, this business was up 2% to 2.1 billion.

· Paying for this business increased 370 million or 17.6% of revenue up 16.3% of revenue in the first quarter of the last year.

Dell’s software business includes systems management, security software solutions and information management. This business delivered revenue of 295 million and an operating loss of 85 million for the quarter. Consistent with prior communication and business plan, it remains confident that the Quest acquisition will be accretive in the first quarter of fiscal year '15 as it invests to grow the business. Michael Dell added, ‘We are enhancing our software capabilities and increasing our investment in this business with additional sales capacity in R&D’.