DELL SHARES FALL
DELL SHARES FALL
2005-11-01 at 9:26:00 am #14452
Dell Shares Fall After 3rd-Qtr Sales Miss Company’s Forecasts
Nov.05– Shares of Dell Inc., the world’s No. 1
personal-computer maker, tumbled in Europe after the company
missed its sales forecast for a second quarter as demand from U.S.
consumers and U.K. businesses fell short of expectations.
Dell shares, down 24 percent this year, fell $1.58, or 5
percent, to $30.30 at 9:12 a.m. in German trading from yesterday’s
close of $31.88 in Nasdaq Stock Market composite trading. The
company said preliminary results show sales were $13.9 billion,
compared with the $14.1 billion to $14.5 billion it had predicted.
Sales growth of 11 percent in the quarter would be the
slowest in more than three years and shows Chief Executive Officer
Kevin Rollins is struggling to balance a strategy of undercutting
rivals while selling high-end products. The missed forecast,
following a similar shortfall last quarter, indicates Round Rock,
Texas-based Dell won’t be able to repeat the sales growth that
averaged 18 percent in the past three years.
“The shortfall here is attributed to this change of strategy
where they’re going to focus on profitability,” Brent Bracelin,
an analyst at Pacific Crest Securities in Portland, Oregon. He
rates the shares “sector perform” and said he doesn’t own them.
“Do investors need to reset their growth expectations for the
Profit was 39 cents a share in the third quarter, the low end
of a previous estimate of 39 cents to 41 cents, Dell said.
Dell said it will also have an expense of $450 million, or 14
cents a share, $300 million of which is associated with costs to
service desktop PCs that were built with a faulty part supplied by
an unnamed company. The part was in some of the Optiplex PCs it
sells to businesses, Dell said, without elaborating.
Dell shares have tumbled 19 percent since the company
disappointed investors in August. The stock yesterday rose 82
cents to $31.88 in Nasdaq Stock Market composite trading.
Sales fell short in the second quarter as the company sliced
prices too far, eroding sales. The consumer business in the U.S.
is $8 billion a year for Dell, Rollins said at the time. The
company said then that it undersold consumers PCs by $10 to $15
each and would focus on steering consumers to more profitable
Demand for desktop computers has been outstripped by surging
sales of notebook computers. Dell gets 63 percent of its revenue
from PCs, with desktop systems representing the single largest
category of sales at 37 percent in the second quarter.
“There’s clearly weakness in desktop PCs and strong growth
in notebooks, but not enough to offset the decline in desktops,”
said Shaw Wu of American Technology Research in San Francisco.
Hewlett-Packard Co., the No. 2 seller of PCs, has been
stepping up competition to win back market share even as it works
to revive profit. In contrast to Dell, shares of Palo Alto,
California-based Hewlett-Packard are up 34 percent this year on
optimism that new CEO Mark Hurd will be able to bolster sales and
Dell’s miss may quash Rollins’ goal of reaching $60 billion
in sales by the end of this year, 12-months ahead of forecasts.
Analysts expect revenue of $56.5 billion this fiscal year,
according to the average of 30 estimates in a Thomson Financial
Last month, Chairman Michael Dell was on hand in New York to
introduce a line of more powerful, more costly PCs aimed at gamers
and technology enthusiasts.
“We can certainly sell systems at $299 and $399, but we
don’t want to,” Rollins said in August. “What we’ve concluded
after this quarter is that unit share is nice, but revenue share
is really the next focus.”
The company will announce final results Nov. 10