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Dell Investors Voice Opposition To Michael Dell

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While analysts applaud Dell’s Streak, investors are taking a more negative view of the company’s chief

Computer-maker Dell will announce its fiscal year 2011 second-quarter results on 19 August. While analysts are feeling positive about the company, offering predictions of modest growth, Dell investors are expressing quite the opposite.

In a regulatory filing released on 17 August, Dell disclosed that 378 million of 1.5 billion votes opposed the continued presence of Michael Dell on the company’s board, The New York Times reported that same day. Such negative sentiments are likely to stem from the recent conclusion of a years-long investigation by the SEC (Securities and Exchange Commission).

Penalties

In July, the company paid $100m (£640,000) to settle charges of fraud presented by the SEC. Dell chief executive Michael Dell, while not admitting to wrongdoing, additionally paid a $4m penalty.

The charge followed from an investigation that began in 2005 and regarded accounting practices related to Dell’s relationship with chip-maker Intel. In time, the SEC accused Dell of not being upfront about the degree to which Dell’s financial performance relied on rebates and payments it received from Intel.

Intel has additionally come under scrutiny from the Federal Trade Commission and the New York State Attorney General’s Office for allegedly anti-competitive practices that have worked to more closely align Intel with customers such as Dell while sharply elbowing out competitors such as AMD. In 2009, Intel settled with AMD, following similar findings by the European Commission, and agreed to pay its rival $1.25bn.

Dell spokesperson David Frink told The Times, following the recent shareholder vote: “Our board of directors has previously reaffirmed its confidence in Mr. Dell’s leadership and a majority of shareholders agreed.”

Analyst approval

Raymond James Equity research analyst Brian G. Alexander, in a 16 August research note, predicted second quarter 2011 revenue for Dell of approximately $15.2bn, with EPS (earnings per share) falling in line with consensus of $0.30.

Dell chief executive Michael Dell

“Our belief in an above consensus revenue forecast is supported by 2Q10 preliminary PC shipment data from IDC, in which Dell’s total unit shipments grew 19 percent [year-over-year], which was somewhat favourably to our unit growth projection of 18 percent year-over-year and was modestly above consensus thinking,” wrote Alexander. “While there have been growing data points about weakening PC unit growth in July, we see this as mostly a consumer PC issue. Consumer PC sales account for [approximately] 15 percent of Dell’s total revenue. We also see potential upside to our server revenue growth forecast of [approximately] 20 percent [year-over-year], as our checks indicate that unit trends were strong through July in the enterprise arena.”

During the first quarter of its fiscal year 2011, Dell saw revenue of $14.9bn, with net income of $584m.

Dell has since launched the Streak in United States, a tablet-smartphone hybrid, and a second Android-running Dell device, the Thunder, is rumoured to be arriving soon. In a June meeting with reporters, Michael Dell noted the opportunities that increased smartphone adoption have created.

He told reporters, “There has to be servers and storage to support all the data that is being pulled by users, and this is an exciting opportunity for us.”