Dell sounds latest warning bell

PC company says 3Q sales dinged by Europe, sees 4Q earnings lower
Written by Larry Dignan, Contributor on

Dell Computer was the latest tech giant to confirm what investors already knew -- business isn't as good as expected.

After the closing bell Wednesday, Dell said its third quarter revenue is growing slower than expected at about seven percent sequentially. The company noted that it was expecting sequential growth of about ten percent.

If the softness persists into the fourth quarter, Dell's full-year revenue could be $32bn, an increase of about $7bn, or 27 percent, from sales for fiscal 2000, the company said. Although that growth rate is good for the industry, it isn't so hot for Dell. Analysts were hoping for growth of about 30 percent, and didn't sound very responsive to Dell's latest attempt to lower expectations.

Dell's current growth rate is roughly half what it was just a few years ago.

The direct PC vendor also missed sales estimates in the second quarter, bringing out a host of doubters.

Dell's revenue warning echoed a profit warning from Intel, which blamed its lower-than-expected sales growth on sluggish demand in Europe. "Through the first two months of the current quarter, Dell's European demand has been weak and growth in sales to worldwide small-business customers, though much faster than the industry rate, has been somewhat short of internal plans," the company said.

Dell said it is on track to meet estimates in the third quarter, but fourth quarter results may be "one to two cents below company targets". According to earnings tracking firm First Call, Dell is expected to report third quarter earnings of 25 cents a share and fourth quarter earnings of 28 cents a share.

Dell chairman Michael Dell was still upbeat about the company's future. Dell told analysts that the PC maker could double its business and continue to post strong profits. Indeed, Dell said that its profit margins are firm because of lower-than-expected component costs. The company also plans to cut prices across its product lines to reflect lower component costs and better supply conditions. The price cuts should stimulate demand, the company said.

Analysts asked Dell when it would crack the code in Europe, an area where the PC maker has struggled in recent quarters. Dell said it was on the right track and noted that business in Asia-Pacific and Japan is strong.

Analysts questioned whether Dell was losing its edge over competitors, namely Compaq, Hewlett-Packard and IBM. Analysts biggest question was whether Compaq was gaining at Dell's expense. Officials said Wall Street will find out when Compaq reports its earnings later this month.

Despite questions about whether the company has lost its advantage over the competition, Dell executives returned to a common refrain. "It's not a question of whether Dell will grow, but how much relative to the industry," Michael Dell said.

Dell's analyst meeting continues Thursday.

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