SAN FRANCISCO -- Dell, the subject of a takeover battle between activist investor Carl Icahn and the company's billionaire founder, reported a 79 percent slide in profit as personal computer sales continued to shrink.

The disappointing results lend weight to Michael Dell's effort. The man who started Dell from a college dorm room wants to take the world's No.3 PC maker private for $24.4 billion, arguing its transformation into a provider of enterprise computing services is best done away from market scrutiny.

Reflecting that shift in focus, Dell reported on Thursday that revenue from enterprise solutions, services and software jumped 12 percent to $5.5 billion, while overall revenue slipped 2 percent. Its "end-user computing division," linked to PC sales, slid 9 percent.

A man wipes the logo of the Dell IT firm at the CeBIT exhibition centre in Hannover February 28, 2010. REUTERS/Thomas Peter
A man wipes the logo of the Dell IT firm at the CeBIT exhibition centre in Hannover February 28, 2010. REUTERS/Thomas Peter ( © Thomas Peter / Reuters )

To augment its enterprise business and go head-to-head with more established players like International Business Machines Corp and Hewlett-Packard (HPQ) Co, Dell is investing heavily on research and sales to retain customers.

Margins on a GAAP basis slid to 19.5 percent from 21.3 percent a year earlier, as total operating expenses climbed 12 percent.

"We made progress in building our enterprise solutions capabilities in the first quarter," Chief Financial Officer Brian Gladden said. "We have taken actions to improve our competitive position in key areas of the business, especially in end-user computing, and it has affected profitability."

Icahn and major stakeholder Southeastern Asset Management, however, dismiss Michael Dell's go-private deal as too cheap for a company trying to become a major provider of enterprise computing. They are proposing new leadership and additional cash or stock for shareholders.

Net income fell to $130 million from $635 million a year earlier. Excluding certain items, income was down 51 percent to $372 million, or 21 cents a share, from $761 million, or 43 cents a share, a year earlier.

That lagged by far the 35 cents Wall Street had expected.

Revenue in its fiscal first quarter ended May 3 fell to $14.1 billion, higher than the average analyst estimate of $13.5 billion according to Thomson Reuters I/B/E/S.

The company said it could not provide a financial outlook because it was in the midst of Michael Dell's go-private deal.

Shares in Dell stayed flat in after-hours trade, at $13.44, after closing at $13.43 on Nasdaq.