NEW YORK (CNNfn) - Dell Computer on Wednesday became the latest technology bellwether to warn about its future revenue and earnings, citing weakness in sales in Europe and to worldwide small-business customers.|
In a meeting with financial analysts Dell's chief financial officer, James Schneider, said that European sales, which were weak in the fiscal second quarter ended July 28, remained soft in the first two months of the fiscal third quarter. The weakness in Europe is affecting the entire computer industry and is not unique to Dell, he said.
Growth in sales to worldwide small-business customers, though much faster than the industry rate, has been "somewhat short of internal plans," Dell said in a statement released after the close of trading Wednesday. Sales to the U.S. federal government, which were sluggish in the quarter ended July 28, have started to pick up, Schneider said.
Based on trends from the first two months of the fiscal third quarter, revenue growth is about three percentage points below the company's previous expectation, Schneider said. That means Dell now expects revenue of $32 billion for the entire fiscal year, a 27 percent increase from the previous fiscal year. Revenue should grow 7 percent sequentially in both the third and the fourth quarters, the CFO said.
Dell's earnings per share for the third quarter remain in line with previous guidance, Schneider said. However, Dell said that its fourth quarter earnings per share could be "lower by a penny or two" per share. The mean analyst estimate for the third quarter is 25 cents per share, and for the fourth quarter is 28 cents.
Dell's stock declined $3.18 to $25 in after-hours trading. About 1.2 million Dell (DELL: Research, Estimates) shares changed hands in just eight minutes of trading after the close, according to Instinet. The stock of Dell's major competitor, Compaq (CPQ: Research, Estimates), declined $1.83 to $27.01 in after-hours trading.
Profit margins remain firm
On the positive side, profit margins remain firm, and the company has benefited from lower-than-expected component costs, Dell said in a statement.
"Optimism around third-quarter profitability is driven in part by favorable component availability," Dell said. "Dell's plans to reduce prices across its product lines have been bolstered by an unanticipated decline in component costs. Those pricing actions will likely have a greater effect in stimulating demand and revenue growth in the fourth quarter of the year."
Dell appears to be doing well outside of Europe and small-business sales. Revenue from large corporate customers, education, home PC users, and the Asia-Pacific region is "very strong," the company said.
"Our growth rate is still a multiple of any major competitor in our space, and we should continue to pull away from the industry over the next several years," Schneider said at the analyst conference. "Our operating expenses are declining as a percentage of sales, and we are generating cash at a rate of $4 billion annually, which adds to our investment income."
Dell's second-quarter net revenue totaled $7.7 billion for the period ended July 28, 25 percent higher than in the year-ago quarter, as net income rose to $603 million, a 19-percent increase. Per-share earnings for the period were 22 cents.
Computer maker Apple's stock was sliced in half on Sept. 29 after it warned that its fourth-quarter profit would fall well short of Wall Street forecasts. The company blamed lower-than-expected sales in September, with particular weakness in the education market. Apple's news spurred a flurry of analyst downgrades on the stock and cast a pall over the entire PC segment.
In addition to Apple, semiconductor giant Intel warned last month that its revenue growth in the third quarter would amount to as little as half what some on the Street had expected. Intel's stock plunged to $47.94 from $61.48 after the warning.
Dell's stock is likely to show a less severe reaction Thursday than Apple and Intel both experienced, however, partly because the expected shortfall in revenue and earnings is small and because the company's stock already has been beaten down over the past month. It declined to $28.56 by yesterday's close from around $43 on Sept. 1, a 34 percent drop.