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Partners: Dell's Investing In The Future; Declining Revenue, Loss Are Not Concerns

Matt Brown
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As if trying to complete the biggest acquisition in the history of the tech industry wasn't dramatic enough, Dell is mounting the effort amid weakening product revenue and declining cash flow.

But despite the weak results and the ongoing task of acquiring data storage giant EMC, partners say they're not concerned about Dell's financial strength or its ability to make the merger work.

"It's not something I worry about," said a top executive at one large Dell and EMC solution provider who wished to remain anonymous. Both companies, the executive said, have strong capital structures despite a challenging climate for IT hardware and the pressure those challenges put on sales and the bottom line.

[Related: Dell Working Capital Program Tops $5B, Partners Use Cash Flow To Drive Growth]

"People make too much of the income statement," said a top executive at another Dell and EMC partner who said he was neither surprised nor concerned by the results. "[CEO Michael] Dell took the company private so he could invest in the future, and that's likely why they had a loss. It's really just a matter of the strength of their balance sheet right now."

In a U.S. Securities and Exchange Commission filing related to the proposed Dell-EMC merger, the Round Rock, Texas, company Monday published certain financial results of its fiscal year ended Jan. 29.

The privately held company's results show $54.9 billion in revenue, a 6 percent decline compared with the earlier year. There was also a $1.1 billion loss, and operating cash flow was hurt by the lack of profitability. The $1.1 billion loss is actually a 10 percent improvement over the $1.2 billion loss the company registered the year before. Operating cash flow was $2.2 billion, down from $2.6 billion the year before.

The company brought operating expenses down 4 percent year over year, to $10.2 billion.

Dell is expected to close the acquisition of EMC between May and October, and sources have told CRN that the company is pushing to complete the transaction on the early end of that range. Dell and EMC execs have said the deal is proceeding as planned despite turmoil and uncertainty in the debt markets.

As originally proposed last October, the acquisition carried a price tag of about $67 billion. Since then, however, the declining stock price of VMware -- which is 81 percent owned by EMC -- has pushed that price down to around $60 million.

Dell intends to take on as much as $49.5 billion in debt to pay for the acquisition from a group of banks including Credit Suisse, JP Morgan, Barclays, Bank of America, Citi, Goldman Sachs, Deutsche Bank and RBC Capital.

Dell has said the company intends to pay down that debt aggressively, especially in the first year to 18 months after the deal closes. The company has been trying to sell off business units as part of the effort to offset the cost of the acquisition. Its Perot Systems unit is reportedly close to being sold to Japan-based NTT Data for about $3.5 billion.

Dell has also been trying to sell its Qwest software business and its SonicWall security business, which together could bring as much as $4 billion.

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