THE WALL STREET JOURNAL.

By SHIRA OVIDE

Dell Inc. showed more evidence that it is giving up today's earnings for a payoff in the future, when the computer maker is likely to be in private hands.

The company on Thursday said net income for its fiscal second quarter dropped 72%, while revenue was essentially flat.

Dell is in the midst of selling itself to Chief Executive Michael Dell and private-equity firm Silver Lake in a deal valued at nearly $25 billion.

The company's results reflect a one-two punch of a sagging market for personal-computer sales and a deliberate strategy to sacrifice earnings for market share.

Dell executives have said that the company is cutting prices on PCs and server systems it sells to companies to land new customers that may buy more profitable software and support services down the road.

Sales in Dell's PC business fell 5%, less severe than the broader decline in that market. But the discounted PCs came at a cost: Operating income for the division selling PCs and related gear fell 71%.

The poor results bolster the case of Dell's directors, who say they decided to sell the company in part because of a string of weak results and executives' inability to anticipate revenue and earnings.

But deal opponents including investor Carl Icahn have said Dell is playing up its financial weaknesses to justify what they say is Mr. Dell's lowball offer for the company.

After a six-month saga, Dell's board two weeks ago approved a revised proposal from Mr. Dell and Silver Lake. Shareholders are slated to vote Sept. 12 on the new offer, which proposes $13.75 a share, plus a 21-cent dividend.

Dell's shares traded at $13.61, down nine cents, in after-hours trading on Thursday. The company reported its results after the close of regular trading.

The Round Rock, Texas, company had been scheduled to report results next Tuesday but announced plans to accelerate the disclosure early Thursday.

Dell's results came a day before an expected court hearing in Mr. Icahn's lawsuit challenging the buyout offer.

A Dell spokesman said that the early financial report was because of the "considerably heightened interest" in Dell.

Mr. Icahn wasn't available for comment.

Dell's results, in part, underscore the pains of Mr. Dell's attempt at a second act. He started the company nearly 30 years ago with a simple but dramatic shift to selling PCs to order by phone and later, over the Web.

That business model is no longer a differentiator. So Mr. Dell has been retooling his company to work more in the mold of International Business Machines Corp., focusing on business customers and supplying them a broad range of hardware, software and services.

Part of Mr. Dell's strategy relies on newer businesses like software to give cubicle dwellers secure access to corporate networks on their smartphones, and new ways to store booming volumes of computerized customer data.

But so far many of those new offerings haven't seriously threatened rivals such as Cisco Systems Inc., Hewlett-Packard Co. and EMC Corp. Bernstein Research analyst Toni Sacconaghi estimates that Dell's newer business lines are unprofitable, stripping out high-margin revenue for tech support and related services for PCs sold to businesses.

Meanwhile, more than half the company's revenue—though a minority of its profit—comes from the shrinking PC business. Dell's server operation also is beginning to face profit squeezes as customers seek cheaper options.

Revenue in the unit that includes servers, networking and data-storage gear rose 8% in the quarter ended Aug. 2, but operating income slid 9%.

Southeastern Asset Management Inc., a large Dell stockholder that has opposed the buyout with Mr. Icahn, said it was "encouraged" by the financial performance of the division. "This further supports our belief that the Michael Dell/Silver Lake freeze-out transaction drastically undervalues the business and its future prospects," the investment firm said in a statement.

The software business posted a $62 million operating loss. Dell continues to spend money to increase research and development and its sales force in those software soft spots, the company said.

"As we have adjusted our pricing, margins have declined, but we continue to make key strategic investments, and we are tightly managing our discretionary operating expenses," Chief Financial Officer Brian Gladden said in prepared remarks.

Operating expenses fell $72 million from three months earlier, a surprising drop for Dell, which hadn't followed through on long-promised cost-cutting measures.

Gross margin continued to fall, to 18.5% from 21.6% a year earlier.

Overall, Dell's net was $204 million, or 12 cents a share, compared with $732 million, or 42 cents, a year earlier. Adjusting for certain items, Dell posted a profit of 25 cents a share.

Revenue rose to $14.51 billion from $14.48 billion.

Write to Shira Ovide at shira.ovide@wsj.com

A version of this article appeared August 16, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Dell's Net Falls 72%, With Vote Looming On Buyout.

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