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S&P downgrades Dell debt rating to 'BBB'

NEW YORK (AP) -- Standard & Poor's Ratings Service lowered its credit rating on Dell Inc. by two notches, reflecting the computer marker's worsening operating performance.

Last week, the Round Rock, Texas, company issued a dismal first-quarter report, as it slashed its personal computer prices in response to the growing popularity of smartphones and tablets. Net income slid 80 percent, and excluding certain items Dell earned 21 cents per share, short of the average analyst estimate of 35 cents per share.

S&P noted that operating margins in the computing segment, which makes up the majority of Dell's revenue, fell to 2.5 percent from 6.5 percent year over year.

The ratings agency reduced its ratings for Dell's corporate credit and senior unsecured debt to "BBB" from "A-." The new rating is just two steps above non-investment grade, or "junk."

S&P also said Dell remains on CreditWatch Negative, implying further downgrades are possible if the company's pending acquisition by a group including company founder Michael Dell is completed. The offer is worth $13.65 per share, but some shareholders have said that bid is too low.

"The $24.4 billion going private transaction, which includes a substantial portion of debt financing, will materially degrade Dell's financial risk profile, which we currently view as modest," the agency said.

Dell shares closed up 1 cent at $13.41.